Ethereum Layer 2’s Are Hot
With many landmarks and milestones along the way, as well as potential turbulence, we’re decisively charting our Path to Crypcadia. A diverse set of sights and situations awaits us, so it’s important to enjoy the view as much as possible along the way. As well we’re testing new routes that may get us there quicker, better, cheaper and more safely.
Why Ethereum Layer 2's & Side Chains?
One of the most monumental developments in crypto tech was Ethereum. It was a giant undertaking of a project, and it’s concept and development has led us to the vibrant ecosystem and other base layer protocol options we see today.
However good things and successful results can sometimes take lots of time. Especially while starting a brand new era of internet and decentralized vision in Web 3.0. The original internet and it’s familiar big name companies(Facebook, Google, Amazon, etc.) took decades to begin and develop to where they are today.
Technology and adoption can take time. Ethereum famously faces the issues of high gas fees and slow transaction times. The more popular it has become the more expensive the base layer is to use. This meant the urgent need for development of solutions to scale the network capacity. Introducing Layer 2’s and Side Chains to help deal with Ethereum’s network congestion issues.
Distinguish between Side Chain and Layer 2’s(L2’s)
L2’s are networks built on top of an existing blockchain such as Ethereum, while side chains are separate blockchains(e.g. Polygon) connected to the original blockchain by a bridge running in parallel.
The most important difference between them is the level of security. L2’s benefit from the much higher level of security provided by the main Ethereum base layer (Layer 1), while side chains are less decentralized and use their own consensus mechanism.
Keep reading to learn more about some popular L2’s and the most well known side chain Polygon...we’ll be revealing 3 CadiaGems to help you out...
Overview of Polygon as Side Chain
Polygon was originally known as Matic Network, and it’s token still retains the name MATIC. It was designed to help scale Ethereum and provide faster, cheaper tx’s. It has its own set of validators to confirm transactions with.
Polygon allows people to send cryptocurrencies to each other easily and cheaply. You can connect with a compatible wallet such as Metamask by adding the Polygon Network details. You can find out the current recommended credentials to use in this official blog post. Polygon RPC gateway
Note: For transactions on Polygon you’ll need to use MATIC to pay gas fees. MATIC could be purchased on a CEX and then sent to your wallet. If you take this approach make sure you select the Polygon Network to transfer the MATIC to your wallet address.
After securing your MATIC in your wallet, you’re then ready to use the Polygon network.
At Crypcadia we always like the decentralized approach. Once your wallet is connected to the Polygon Network the whole DeFi ecosystem becomes available to use. You can use DEXs such as QuickSwap Interface and AAVE or ParaSwap - Solving Liquidity for DeFi a DEX Aggregator.
Guess what, the transactions costs are so small you’ll hardly notice them compared to the costs on base layer Ethereum!
You’ll be able to see all transactions on the Polygon network here: Polygon (MATIC) Blockchain Explorer (polygonscan.com). If the token itself is not already listed in your Metamask or other wallet, you may need to add the contract hash to the transaction from Polygonscan. Click on your wallet address, then from the token dropdown list select the crypto you need to add. It will take you to another page with the contract hash, copy and paste that into your wallet. Screenshots below.
The most important aspect of this is to start using and learning the technology now, which brings us to...
CadiaGem 1. ‘Gain experience early and beat the crowd to these new ecosystems’
If you do this you will have valuable knowledge over the vast majority of people yet to start, and be better prepared for the future. You will have better chances to grow along with the ecosystem and benefit from new DApps, and you never know you might be in line for an airdrop! Check out our past article on airdrops if you haven’t already here: Sir, wen airdrop? - Crypcadia (substack.com)!
Popular Layers 2’s
Some of the most used and well known Layer 2’s are Arbitrum and Optimism. There’s also BOBA which is launching soon. You can find great info on the top L2’s at L2BEAT – The state of the layer two ecosystem.
Arbitrum
Arbitrum is an optimistic rollup. This means that it can handle a bunch of different txs all ‘rolled up’ off-chain. It then returns the end result to the main Ethereum network base layer. Many of the top DeFi apps (AAVE, Balancer, Curve, Uniswap) are looking to take advantage of the speed and low fees offered by the Arbitrum network as compared to the high cost of the Ethereum main network. In fact it is meant to mimic the best experience of Ethereum without speed and high gas fee issues. There are a wide variety of DeFi and other DApps already available on Arbitrum and it has by far the highest Total Value Locked (TVL) than any of the others.
Optimism
Very well named, with a positive vision of the future, Optimism is another optimistic rollup similar to Arbitrum. Popular DApps already available on Optimism include Uniswap, Synthetix, and 1inch but with only selected offerings compared to Arbitrum. Not many tokens or DApps are available yet, as they’re taking a ‘private permissioned’ approach to launching the Optimism Network in the early stages. Arbitrum has taken a more open approach to developers and projects.
Don’t let that stop you from checking out some of the more unique offerings on Optimism now. As we keep mentioning, the earlier you are the more likely you will be in line for future airdrops. You may have to absorb paying some gas fees, but could be well worth it in the long run. Sunday usually has the lowest GWEI prices, so set aside some time then if you can.
Once on Optimism the same offer of lower gas fees, quick transactions, and a decentralized L2 with the security of L1 Ethereum are on offer here! TVL is going up every week as users gradually migrate their liquidity from the more expensive L1.
Optimism - Ethereum at Lower Costs & Lightning Speed
Here are some apps available on Optimism that could be worth trying, wink wink:
Kwenta | derivatives trading with infinite liquidity
BOBA
Boba grew out of the well-known token OmiseGO(OMG). The original project was an older version of Layer 2 called plasma, or more specifically ‘more viable plasma(MoreVP)’. Plasma turned out only to be suitable for very basic tx like transfers, so the company setup changed, along with technology, to focus on L2 optimistic rollups instead. Now they are Boba, with the same goal of offering low fees, high throughput speedy transactions and NFT bridging between L2/L1.
Note that if you currently hold any OMG tokens in your decentralized wallet, you will qualify for the Boba airdrop on Nov. 12th, 2021. If they’re on a CEX double check if they’ll support it. More info here: $BOBA Token Airdrop Details
Boba | Layer 2 Ethereum scaling and augmenting solution
We’ve covered side chains and optimistic rollup Layers 2 in this article, but in a future article we will talk about zero knowledge (ZK-rollups) and Validiums. dYdX is using ZK-rollup Starkware for example.
Also note that chains like Binance Smart Chain(BSC), KuCoin Chain(KCC), and Huobi Chain(HECO) are not Layer 2’s, but hard forks of Ethereum which use only 21 nodes run by an even smaller set of entities on a DPoS consensus mechanism. This offers much less security than the thousands of nodes of the Ethereum network.
However I can appreciate the cheap fees are very attractive, and I anticipate cost vs security will be a key topic of debate in the coming months. In my opinion L2s offer the best of both worlds.
Switching between L1, L2 and Side Chains
One limitation of Arbitrum and Optimism is that they take 7 days to validate all txs and return funds to the Ethereum Mainnet, while Boba offers faster exits via their community driven liquidity pools in just a few mins. You can pay a small fee to speed up those Arbitrum and Optimism txs, but this all may be irrelevant if the future of Ethereum is purely on Layer 2. Ie. No need to transfer back to L1 and only be interacting with DApps which may one day all have migrated to L2.
But for the time being if you want to avoid the 7 days withdraw time to the base layer or tx between L2s then here’s what you’ll need:
Hop Exchange allows you to transfer between the most popular rollups (Arbitrum, Optimism), sidechains (Polygon, xDai), and Ethereum Mainnet. Not every route is available yet. For example, you can’t transfer Polygon to Arbitrum or Optimism, but you can transfer Polygon to Ethereum Mainnet(watch out for high gas fees!). Connect your wallet and have a look around Hop Exchange here:
If you’re looking to exchange stablecoins such as USDC/USDT/DAI between some of the most popular supported chains, have a look at xPollinate. It supports some of the most popular chains including Polygon and Arbitrum.
Now that you’re more familiar with some of the biggest upcoming L2 players take some time to go deeper and play around with them. The low fees compared to the main Ethereum network provides you the perfect opportunity to start learning and using these before the rest of Earth’s population!
Which brings us to:
CadiaGem 2. ‘Invest your time for your future. It's so important to stand out from the crowd and demonstrate Cryptoverance’
Early L2 DeFi
This could end up being one of the best ways to invest your time for your future. Take advantage of these early days, because you will get the best APY in liquidity pools, lending, yield farming or other DeFi protocols if you get in early. You will also be in line for potential airdrops as we mentioned.
Layer 2’s especially provide this unique opportunity now, as in the last year Ethereum co-founder Vitalik Buterin himself stated that the future of Ethereum lies in a Layer 2-centric rollup approach. This will help compete with the speed and low costs of newer base layer blockchain protocols that have entered the market over the last couple years.
It should be noted that not all of the new base layer chains retain the original decentralized vision and make sacrifices to achieve speed and tx throughput. Whereas Ethereum has always remained true to the original decentralized vision.
So with the upcoming transition to Layer 2 rollups it’s like a 2nd chance to get in early on the Ethereum ecosystem. Many DApps are now migrating over to Layer 2 to scale- including DeFi, gaming and NFT projects.
Which brings us to our final...
CadiaGem 3. ‘Cash poor still leads to cash rich in this industry’
Early adopters of the original Ethereum DeFi stack got the best rates, qualified for airdrops, and had the benefit of time growing with those DApps and the Ethereum ecosystem...now you have the chance to do similar with the Layer 2 ecosystem!
We’ll give you an example of how this can pan out:
Recently Axie Infinity players have vastly benefitted from being early to playing a decentralized game, from a company with a decentralized vision, the creator studio Sky Mavis. Besides owning valuable Axie Metaverse game-related NFTs, the company also gave an airdrop of AXS tokens to their community.
This caused the price to immediately skyrocket up the charts. Despite the growth, the majority of the committed community is still staking their coins for their own benefit within the game... eventually the plan is to hand the game over entirely to the community.
This has helped players from around the world survive during the global pandemic, including those in poorer and less developed nations such as the Philippines. This play to earn (P2E) model has even replaced traditional employment in some cases, which is amazing considering how many have lost their jobs due to Covid!
Talk about the (r)evolution of value and values we’re currently in!
It’s just one great example about how in the new dimension we’re living in then getting in early, even diversifying into activities you wouldn’t normally try, can be hugely rewarding. If games aren’t your thing, DeFi and L2’s are the future of BYOB on Ethereum!
Of course the earliest crypto adopters did the best, so let’s keep that spirit alive and adapt it to our current time!
Let’s work together to create the decentralized financial system of the future, chosen by us and for us...because in Crypcadia we will always BYOB!