Let's Go Layer Two!


Hey DEFI TIMES community,

The layer-2 ecosystem is growing faster than ever before - especially on Ethereum. The people are demanding fast, cheap, and secure transactions. They want affordable token swaps and access to the DeFi ecosystem without having to pay hundreds of dollars for one single transaction. 

This is what people want, and this is precisely what they will get! Layer two is not years away; it's not months away - the future is already here!

The layer-2 ecosystem is growing at an incredible rate! It's growing so fast that most people cannot even keep up with all the developments. If you want to keep up with it, you have o follow:

  • Optimistic Rollups

  • zk-Rollups

  • Plasma

  • Sidechains

  • and a lot more

It's almost a full-time job to do the work! That's why we have put together a summary of the essential layer-2 projects out there!

Let's explore the new scalable world evolving simultaneously to the ETH main chain!


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The State of the Layer 2 Ecosystem

Immutable X

Immutable X is a zk-rollups exchange by Immutable. They use StarkWare's technology to scale NFTs for the masses. Even today, you can connect your Gods Unchained wallet with Immutable X to avoid paying high gas fees when the exchange goes live.

In my opinion, Immutable X is one of the most valuable layer two projects out there. NFTs are going mainstream as we speak, and the Ethereum main chain is certainly not ready for all the newcomers.

Transacting NFTs on Ethereum is costly. Especially low-value NFTs have long been priced out - it just doesn't make sense for you to move a $3 NFT when the gas fee alone costs $50. 

Taking NFTs on a 2nd layer solution is inevitable at this point. The people want low gas fees, scalability, and fast and cheap transactions.

Uniswap v3

Uniswap v3 will initially launch on the Ethereum main chain; however, they plan to release an Optimistic rollup version of Uniswap v3 "shortly after."

Optimistic Rollups (OR) are EVM compatible layer two solutions. That means you can deploy your Ethereum code on OR very easily - developers don't need to rewrite the code. 

In plain words, OR allow Uniswap to scale for the masses. It just takes one transaction to get your funds on the rollups. Once that happens, you can use Uniswap at light speed. Gas fees will be negligible. The only real costs evolving will be the liquidity fees paid out to the liquidity providers.

The liquidity fees range from 0.05% to 1% - in my opinion, that's reasonable!

Hermez Network

Next up is Hermez Network - Hermez Network is a zk-rollup focused on payments. The mainnet launched a few weeks ago, and few people are talking about it - yet the protocol is of immense value to the ecosystem.

Payments are costly on Ethereum, and we need rollups focused solely on that. While Uniswap focuses on token swaps, Hermez focuses on transacting tokens between two or more accounts. Hermez's USP is that they put a lot of effort into making the user experience smoother and more accessible!

They also have a fascinating concept called "proof-of-donation," which aims to fund the Ethereum developer ecosystem.

Hop Protocol

Hop Protocol aims to connect all rollups. We face a massive challenge because rollups are not interoperable with each other. Hop Protocol tries to solve this issue by bridging the gap between all layer two solutions.

Without Hop Protocol, switching between different rollups would be a pain. It would work like this: There are two rollups (rollup A and rollup B) - your funds are currently located on rollup A. To switch from rollup A to rollup B, you first need to withdraw your funds from rollup A to the Ethereum main chain, which usually takes some time. Then you would need to deposit your funds from the Ethereum main chain to the rollup B.

Hop Protocol is an excellent way to avoid this intermediate step of withdrawing your funds to the main chain first.

Optimism

Optimism is the best-known rollup solution out there. Teams can deploy their code on Optimism's optimistic rollups solution very quickly; there are no significant hurdles.

Once the code is deployed, you need to deposit your funds on the optimistic rollup. One single Ethereum main chain transaction and you are set to go; that means almost no gas fees on the rollup itself. Sounds too good to be true?

Well, that's precisely what Optimism plans to deliver - and they are launching in July!

Optimistic rollups are fast, cheap, and scalable for the masses. Collecting transactions in a bundle only needs very little block space, ultimately reducing the gas costs to an absolute minimum.

Optimistic rollups have certain disadvantages, though: For example, it takes about one week to withdraw your funds back to the ETH main chain. But why would you ever go back to the ETH main chain when rollups are cheaper, and the music is playing there?

Arbitrum

Arbitrum is Optimism's main competitor. Arbitrum's team also builds an optimistic rollup solution but with one significant difference: Their rollup will be entirely EVM-compatible! That means you don't have to rewrite the code in any way to deploy it on the optimistic rollup.

In contrast to Arbitrum, Optimism requires a little bit of code modification, which could be a small hurdle for teams looking to integrate a second-layer solution.

In terms of timeline, Arbitrum looks like it could launch very soon. A few weeks ago, Arbitrum announced that they released their Kovan testnet allowing developers to deploy their smart contracts and play around with the ecosystem. 

Arbitrum could go live even before Optimism. The race has begun, and the competition is heating up!

dYdX

In February, dYdX announced they would build on Starkware's zk-rollup solution. To access the app, you need to sign up for a waitlist. That means it's not released for the public. There's also a limit of funds you can deposit (for safety reasons).

When can we expect it to go live? Well, very soon! 

The code is almost ready - let's ship!

Conclusion

The Layer-two ecosystem is heating up. I hope this gave you a clear and concise overview of what we can expect to happen in the near future.

Arbitrum goes live very soon, Optimism will launch its mainnet in July, and zk-rollup solutions are live already today.

That's how Etheruem will scale - soon; there will be no reason to stay on the Ethereum main chain anymore. 

That's the future, and the future is already here!


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All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.

Do your own research before you purchase cryptocurrencies. Any cryptocurrency can go down in value. Holding cryptocurrencies is risky.