As one of the first layer 2 DEXs to be operating on mainnet, we would like to share some of our learning points from the past 9 months, as well as our expectations & thoughts on L2 for the coming year
TLDR, layer 2 is ready to go supernova 🚀
TLDR, layer 2 is ready to go supernova 🚀
Fragmentation - We originally assumed that most apps would congregate on one L2. What we are actually seeing is apps launching on multiple L2s & L1s. This trend will continue as different scaling solutions offer different pros & cons. There is likely to be no 'winner takes all'
Bridges - Within 12 months it is likely that most people will ever need to touch L1 Ethereum for their everyday needs. Bridges between different L2 apps (both on the same rollup and different rollups) as well as CEX <> L2 bridges will be the norm.
Bridges (cont) - CEXs will support on/off boarding for L2 as fiat on/off ramps and to offer users a way to trade non Ethereum based tokens. This will be a watershed moment for layer 2.
CEXs that are slow to support L2 will miss out on significant flow
CEXs that are slow to support L2 will miss out on significant flow
Fees - Zk rollups are expensive to run and act as a barrier to entry for startups. Each batch/proof can cost up to $2k at peak times to put on-chain, meaning that primitives such as conditional transfers & fast withdrawals are essential at reducing costs
Fees (cont) - Projects may start with validium implementations, that are compatibly cheaper and offer privacy, before moving to a full rollup, or a combination of both zk and validium
Fees (cont) - Apps may move to the same instance of a zk rollup based on a certain technology (StarkWare, zkSync etc) to share proof/batch costs. We will start to see some larger apps incubate smaller projects on their own rollup (a form of white-labelling) and share expertise
Optimistic Rollups - long withdrawal times may not be ideal for all apps. Loans (eg Maker's Optimism bridge) and bridge AMMs are key to improving usability. Connext and Hop are doing great work here
CEXs with large balance sheets could also take the credit risk of OR withdrawals
CEXs with large balance sheets could also take the credit risk of OR withdrawals
EVM compatible rollups - EVM adds more flexibility, but means less optimisation for cost and scalability
Application specific roll-ups will out-perform for the majority of use cases and majority of mainstream users compared with EVM compatible rollups
Application specific roll-ups will out-perform for the majority of use cases and majority of mainstream users compared with EVM compatible rollups
Tooling - As layer 2 grows so will the quantity & depth of integrations with the wider crypto ecosystem, including wallets, portfolio trackers, bridges, explorers and support. This will make layer 2 seem much less scary and more inviting to users
Long term - Layer 2 is more than just a ‘sticky plaster’ for Ethereum and is essential for the Ethereum roadmap
L2 will always be able to offer what L1 cannot - cheaper fees, faster throughout and, in some cases, privacy. L2 complements L1 and vice-versa - stronger together
L2 will always be able to offer what L1 cannot - cheaper fees, faster throughout and, in some cases, privacy. L2 complements L1 and vice-versa - stronger together
DeFi has on-boarded millions of new users to the world self custody. The next 12 months are going to be about ensuring L2 apps can offer them what the current ‘competing’ L1s offer but without compromising on decentralisation or security
The next 12 months are going to be wild!
The next 12 months are going to be wild!
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