Layer 2 solutions and Ethereum 2.0, who is the best solution for DeFi to become mainstream?
Editor's Note: This article comes fromCointelegraph Chinese (ID: CointelegraphChina), Author: ANTÓNIO MADEIRA, reprinted with authorization by Odaily.
Editor's Note: This article comes from
Cointelegraph Chinese (ID: CointelegraphChina)
Cointelegraph Chinese (ID: CointelegraphChina)
, Author: ANTÓNIO MADEIRA, reprinted with authorization by Odaily.
If the DeFi industry continues to grow like it did in the first half of 2020, the Ethereum network will be in trouble. Recently, the Ethereum network has shown several issues such as overloading and inability to scale.
These issues include an exponential increase in gas usage, which leads to increased fees and slower confirmation times. This, in turn, makes some smart contracts prohibitively expensive to use and poses a significant challenge for leveraged DeFi investors and borrowers who cannot quickly adjust collateral to avoid liquidation.
Clearly, viable solutions need to be found to help DeFi keep growing. This emerging field is undoubtedly one of the most promising aspects of decentralized blockchain technology and is undoubtedly the largest use case of the current Ethereum blockchain. According to the ranking of ETH Gas Station, an on-chain data resource website, Uniswap is the largest gas consumer on the Ethereum network, followed by Tether (USDT).
In order to scale the network and ensure its long-term success, the Ethereum development team has been working on Ethereum 2.0. This will enable an entirely new version of Ethereum, turning it into a proof-of-stake network with multiple sidechains that can work simultaneously to increase transaction throughput and scalability.
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What are layer 2 solutions and how do they work?
Although layer 2 solutions are often considered one of the possible solutions and many are already available, they are often overlooked and difficult to grasp.
A layer 2 solution is like an additional blockchain that works in tandem with the mainnet to save space. In these "layer 2 schemes", transactions can be packaged together before being broadcast to the Ethereum network, saving fees and space.
While layer 2 solutions are currently available, they have not been widely used by the community. Ilya Abugov, head of open data at analytics platform DappRadar, told Cointelegraph:
“I don’t get the feeling that many people are adopting these layer 2 solutions. I think the market is waiting for the launch of Ethereum 2.0. If the launch of Ethereum 2.0 continues to be delayed, then DeFi dapps may attract more participation, otherwise they will spend more More energy to integrate Ethereum 2.0."
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What are the current layer 2 solution options?
The OMG network is transaction-focused, allowing up to 4000 transactions per second (TPS), while still maintaining the security of the Ethereum blockchain through smart contract technology.
The OMG Network caters to the needs of developers and companies, significantly reducing the cost of doing business on Ethereum.CoinMarketCap
Tether has recently integrated with the OMG network and the OMG/USDT pair rallied sharply following the move. OMG Network COO Stephen McNamara told Cointelegreaph:
“The OMG Network supports fast, cheap and secure value transfers for ETH and any ERC-20 token. By transferring tokens to the OMG Network, other more experimental and expensive smart contract services can continue to operate on Layer 1 .When integrated with the OMG network, transaction fees can be as low as pennies, and verification times can be as low as seconds, all while maintaining Ethereum-level security."
Source of OMG's recent performance:
The OMG token is the native token of its network and is required to interact with the network. After integrating with Tether, the OMG/USDT trading pair surged in August as Ethereum fees reached record levels. According to CoinMarketCap, OMG reached an all-time high of $7.37 on Aug. 21, a gain of roughly 340%.
On the other hand, Loopring focuses on improving the transaction throughput of decentralized transactions on the Ethereum blockchain, which can reach 2500 TPS. The Loopring network uses zkRollup technology to power its protocol, and the native token LRC is also an ERC-20 token that holders can stake to earn protocol fees. Recently, LRC has also performed well, rising from $0.13 to $0.25 in August.
Investors may conclude that the strong performance of these tokens in August is significant because DeFi activity is peaking at this time. This demonstrates the growing demand for cheap transactions on the Ethereum network, which in turn leads to demand for these layer 2 tokens.
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DeFi scaling is the next frontier
While layer 2 solutions will certainly help Ethereum scale, there are still many challenges and users will need to spend some time interacting with these solutions. However, if the DeFi space resumes its parabolic growth rate, a solution is urgently needed, which may start using protocols such as OMG and Loopring.
