The most complete collection of Layer 2 projects and the core problems to be solved in Layer 2
This article comes from: Decentralized Financial Community; Reprinted with authorization
The technology around Layer 2 solutions has grown more sophisticated over the past year due to Ethereum’s network congestion and transaction fee spikes.
We are seeing a rapid increase in Layer 2 activity on Ethereum, as many leading DeFi protocols are now choosing to build or port contracts to several thriving Layer 2 ecosystems.
What is Layer2?
"Layer 2" or "L2" collectively describe a number of solutions (rollups, validium, plasma, state channels, etc.) that help decentralized applications scale by taking transactions off-chain. They are conceptually built on Ethereum, hence the name.
Despite the congestion on the Ethereum network, the Layer 2 solution allows users of any Ethereum application to enjoy instant and affordable transactions at extremely low gas costs, while still leveraging the strong security and decentralization of the Ethereum mainnet.
Top DeFi protocols lead the way
DeFi 1.0 has already shown its potential to transform global finance. However, Ethereum's network congestion and high gas fees still keep it out of use for many. Now that DeFi has taken hold, we see some of the most well-known protocols rushing to implement Layer 2 solutions to ease the burden and barrier to entry for users.
Aave, a non-custodial liquidity protocol for earning interest on deposits and borrowing assets. It launched on Polygon last month, making DeFi products more widely accessible to all, and quickly grew to over $1 billion in liquidity in just 10 days.
1inch, a platform aimed at finding the best trading platform among multiple decentralized exchanges (DEXs), has just announced its expansion to Polygon. It joins Aave as the most notable DeFi dapps integrating with Layer 2. This initiative provides 1inch users with several Polygon-based liquidity sources, including Curve, SushiSwap, QuickSwap, Aave.
dYdX is a leading margin trading and perpetual trading platform. In order to scale up transactions, dYdX and StarkWare have established a Layer 2 protocol for cross-edge Perpetuals based on StarkWare's StarkEx scalability engine (Layer 2) and dYdX's Perpetual smart contracts. dYdX users can now trade with zero gas costs, lower transaction fees, and smaller transaction sizes. Top DeFi protocols are leading the way: the list keeps growing
Each Layer 2 solution has a project follow-up implementation.
Optimistic rollups (on-chain data, fraud proof): by Optimism, Offchani Labs Arbitrum, Fuel Network
ZK rollup (on-chain data, zero-knowledge validity proof): implemented by Loopring, Starkware, Matter Labs zkSync, Aztec 2.0
Validium (off-chain data, zero-knowledge verification proof): implemented by Starkware, Matter Labs zkPorter
Plasma (off-chain data, fraud proof): implemented by OMG Network, Matic Network, Gazelle, Leap DAO
State channels: Implemented by Connext, Raiden, Perun
Off-chain scaling solutions also include sidechains, however, it should be noted that sidechains do not inherit the security of Ethereum 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
QuickSwap- DEX
Hermez network- Payment
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
As the technology continues to mature, and the need to bring Ethereum transactions off-chain continues to grow, it becomes increasingly interesting to expand the Layer 2 ecosystem. Due to the recent surge in Layer 2 activity, there is a significant network effect that provides more incentives for integration of DeFi protocols.
Currently, Polygon has the most mature and fastest growing network. Since October 2020, the total value locked on Polygon has risen from less than $5 million to the current $5.8 billion. In comparison, xDAI’s TVL is currently around $71 million.
Layer 2 decentralized exchanges are also increasing
Decentralized exchanges are at the heart of the second layer ecosystem.
While some protocols have integrated with Layer 2 native decentralized exchanges, they only focus on increasing the available liquidity of the Layer 2 ecosystem, providing users with a "Uniswap experience" with extremely low gas fees.
Layer 2 decentralized exchange trading volume in 24 hours:
Quickswap (Polygon): $668286390
Loopring: $22,181,254
ZKSwap: $18449198
Deversifi (Starkware): $6,053,032
Leverj (Gluon): $3,011,540
In comparison, Uniswap had a transaction volume of 1.65 billion.
The most anticipated projects are being built on Layer2
While many projects on Ethereum migrated to Layer 2 after initially building on Layer 1, some of the most anticipated projects in 2021 chose to build on Layer 2 from the start.
One example is Scaleswap, an IDO startup platform that is about to partner with Polygon. Scaleswap is taking advantage of Layer2 scaling and state-of-the-art user experience to improve IDO, making it accessible and fair for all.
Since the rise of Polkastarter in late 2020, the IDO launch platform has revolutionized cryptocurrency investing and financing. However, as with many early DeFi protocols, current platforms cannot yet offer true open access due to high gas costs and a lack of ideal selection criteria when deciding to join a startup pool. Layer2 scaling and a community-focused approach can help Scaleswap solve both of these problems.
There are still many core issues to be solved on Layer2
In the article introducing the Layer 2 expansion plan, Vitalik listed in detail that there are still many unresolved problems in the Layer 2 expansion plan, and these are also opportunities for developers and investors on Layer 2:
User and ecological migration: Although many protocols have been migrated to Layer 2, the infrastructure supporting L2 wallets and payment methods is far from enough.
Cross-rollup transfer transactions: rollups can communicate with Layer1 and transfer money, but rollups cannot directly transfer money in real time. The transfer between rollups will still generate high gas fees through the main network and need to wait for a withdrawal time of 1 hour or even 7 days. There needs to be a decentralized direct real-time transfer method between rollups as soon as possible. Both Orbiter finance and Hop exchange are protocols to solve this problem. The difference is that in a transaction, Orbiter transfers across rollups only need to pass a contract on the target rollup, while Hop needs to pass a contract on each rollup at both ends of the transfer. .
Audit incentives: For large-scale rollups, it is still necessary to study how to increase the probability of an honest node submitting fraud proof information as much as possible when errors occur in optimistic rollups.
Looking for the design space between Plasma and Rollup: Is there a technical solution to put some data related to status updates on the chain instead of all?
Maximize the security of pre-confirmation: Many rollups have added the "pre-confirmation" function to improve user experience. The transaction will be included in the next batch of transactions that are about to be verified, but the sequencer reneges again, so "pre-confirmation" is not safe. The degree to which this problem can be solved through token economic incentives will be limited, so is there a better solution mechanism?
Improve the response speed to the real sequencer: If a sequencer suddenly goes offline, it needs to be repaired quickly and cheaply. The repair method is either to switch to other rollups quickly and cheaply, or to replace the sequencer.
Efficient ZK-VM: Creating a ZK-SNARK can be used to prove whether the general EVM code is executed correctly and gives the correct result.
Ethereum 2.0 is coming soon
The big question on everyone's mind is whether layer 2 space will still make sense once Ethereum 2.0 arrives. Ethereum 2.0 has multiple layers, not all of which are immediately deployable. The PoS merger is scheduled to launch later this year, but it is only the first of five major concepts that will form the future of Ethereum. The biggest throughput upgrade is sharding, which won't happen until 2022 or 2023. The shards themselves will be rolled out in stages and may take additional time to fully roll out.
Bottom line? No amount of Ethereum 2.0 scaling will be enough to satisfy demand. Users always want the web to be cheaper and faster.
Vitalik Buterin said in response to whether the Layer 2 scaling solution is still applicable to the release of ETH 2.0:
"Fully off-chain Layer 2 based on channels and Plasma will continue to function...Ethereum's global ecosystem may easily have more demand, especially for micropayment-oriented applications. The "Layer 2" space will become more interesting.
There will be no competition between Ethereum 2.0 and Layer 2 solutions. Instead, the two will work in tandem. Whether it is now or in the future, Ethereum is the main channel. Layer 2 provides the surrounding roads, bridges, on-ramps, and other necessary infrastructure to make Ethereum a robust, global-scale network. The Ethereum Layer 2 ecosystem is thriving, and it's just getting started.
