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Layer 2 Solutions – Making DeFi, NFTs and DApps More Accessible

Layer 2 Solutions - Making DeFi, NFTs and DApps More Accessible

Creating a highly scalable blockchain with minimal fees and viable for daily use is a challenge. The largest blockchains can only process a limited number of transactions per second, and Layer 2 (a secondary framework or protocol that is built on top of an existing blockchain system) solutions offer an increase in throughput while retaining security and decentralization. 

In the latest L2 news, zkSync 2.0 (a permissionless rollup that allows developers to build and deploy decentralized applications in a low-fee, highly scalable Layer-2 environment using Solidity) is going to be launched on the Ethereum mainnet in the coming 100 days and is going to be very significant for the Ether chain – the technology will potentially half the cost of transactions on the network, and inherit the full security feature of the Ethereum blockchain.

As of now, there are a handful of sophisticated Layer 2 solutions developed, which have made inroads into the blockchain space, profoundly transforming the industry. 

Some of the Most Transformative L2’s

One of the more well-known is Arbitrum, built for Ethereum. It is designed with the core purpose of enabling developers to run Ethereum transactions and Ethereum Virtual Machine (a complex, dedicated software virtual stack that executes contract bytecode and is integrated into each entire Ethereum node) contracts on a second layer without changing their code, all while making the most of Layer 2 functionality.

Arbitrum addresses some of the current issues with Ethereum smart contracts – namely inadequate efficiency coupled with relatively high execution costs, which have resulted in a negative user experience.

Another example is Echo, an advanced Layer 2 network which easily integrates into existing blockchains and provides network interoperability and advanced scripting features for crypto assets. It is especially powerful for developers, enabling them to build high-performing DApps.

With the help of bridges that provide for liquidity transfers and bring assets from other chains and rollup bridges, it assists in scaling non-monetary transactions for future Ethereum dApps.

Polygon (previously Matic Network) relies on its own Proof of Stake consensus mechanism, and has the potential to operate with thousands of chains scaling together to boost total throughput.

So far, Layer 2 solutions have demonstrated their potential and have already left positive impacts on the blockchain ecosystem. Despite losing some momentum with the launch of the Ethereum 2.0 upgrade, it is likely that they will remain on the scaling agenda and help the blockchain move into the lead.

3 Companies Leveraging Their Power

Aave

Aave, one of the largest decentralized finance protocols with over $11 billion in TVL, launched its V3 upgrade in March 2022. The goal of V3 is to focus on “cross-chain asset flow while improving capital efficiency and security,” and have launched on Polygon, Fantom, Avalanche, Arbitrum, Optimism, and Harmony.

According to an article in Crypto Briefing, “the team says users will benefit from clearer transaction flows and faster load times, and the protocol will be integrated into a range of DeFi’s most used products, including Instadapp, Debank, 1inch, ParaSwap, Zapper, DeFi Saver, and Zerion” and “the update also adds features specifically designed to optimize the user experience on Ethereum’s Layer 2.”

By allowing its tokens to be ported to another project — Matic Network (MATIC) – transactions can be performed at higher speeds and at a much lower cost than on Ethereum’s network. After all, Ethereum has seen a massive surge in gas prices, which tend to go up to $19.

Fiat24

Fiat24 is a web3-ready banking concept built on Arbitrum, with a mission to grant everyone access to a seamless payment experience. Through their DApp, they have created a regulated ecosystem that is built for peer to peer transactions via both traditional banking services and crypto wallets.

They decided to build on Layer 2 solution Arbitrum for multiple reasons – as CTO Nico Buechel has said:

“Using Arbitrum to run our DApp makes sense because of the low fees involved, as well as faster blocktime. Those are the main advantages for us and makes us attractive to our clients, as their transactions can be made immediately and at low cost to them.

Curve

Curve, another leading decentralized exchange which specializes in stablecoin swaps, recently launched on Layer 2 rollup (the actual transaction computation happens off-chain) network Optimism. Optimism’s total value locked (TVL) has grown slowly, but currently ranks as the fourth-largest L2 with just 13% of the TVL boasted by top-ranked L2, Arbitrum.

Curve is not the only leading DeFi dapp to have selected Optimism or scaling, with rival DEX Uniswap, synthetic asset protocol Synethix, and leverage exchange protocol Perpetual Protocol already live on the network.

Final Thoughts

Despite the continued growth and adoption of DApps for various use cases, from lending to trading to exchange, in order to make even more considerable gains, the ecosystems must become more secure and allow for cheap transactions. This is especially pertinent as users become increasingly aware and educated about how to use and access them.

If you enjoy reading stories like these from thelatestblock.com, consider subscribing.

 


This content is for news and educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.

Author

Karen Shidlo went to college in NYC, and has lived in Switzerland for the past 6 years. Currently marketing manager at Fiat24, she is passionate about blockchain technology and the impact that it can have on the world. Fiat24 is a web3 banking concept, built on Ethereum and powered by smart contracts to offer everyone a seamless peer-to-peer, next-generation payment experience.

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