Podcast Summary
Exploring Ethereum's Layer 2 Solutions: Insights from Loopring, Synthetics, and Immutable X: Three developers discuss their experiences building on Ethereum's L2 chains, offering insights into the current state and future roadmap of Loopring, Synthetics, and Immutable X. The importance of Ethereum's scalability solutions is emphasized, impacting DeFi and the Ethereum ecosystem.
Ethereum is currently facing high gas fees, leading to the need for scalability solutions through Layer 2 (L2) chains. This panel discussion featured three individuals working on projects built on different L2s: Loopring, Synthetics, and Immutable X. These developers shared their experiences during the research and building phases, providing valuable insights into the current state and future roadmap of these L2 projects. The importance of understanding Ethereum's scalability trajectory and L2 solutions is highlighted, as it could significantly impact the future of DeFi and the Ethereum ecosystem. Additionally, the panelists discussed their reasons for choosing Ethereum over other platforms and the potential competition or value generation between L2s and Ethereum's native Ether asset. Overall, this conversation offers a comprehensive look into the current state and future potential of Ethereum's L2 solutions.
Earning yield and building a crypto empire with AAVE and Gemini: AAVE lets users earn yield by depositing assets and borrow without withdrawing, while Gemini offers interest on parked crypto assets and a crypto credit card for rewards.
Both AAVE and Gemini offer innovative ways to earn yield and build a crypto empire during the bull market. AAVE allows users to deposit various assets to earn yield and borrow against them without having to withdraw and trade, making the process seamless. Gemini, on the other hand, lets users park their crypto assets to earn interest and soon introduces a crypto credit card for rewards in crypto. Meanwhile, Loopring, Synthetix, and Immutable have all found the need to scale their applications by deploying them on Ethereum L2 solutions like zkroll ups and optimistic roll ups, as the main chain's capacity was not sufficient for their needs. These projects, which include order book exchanges, AMMs, and NFT asset exchanges, have successfully implemented L2 solutions to improve user experience and scalability.
The need for layer 2 solutions for high-performance NFT applications: Layer 1 solutions like Ethereum have limitations for high-performance NFT applications due to transaction throughput and high gas fees. Teams turned to layer 2 solutions like ZK rollups and AMMs to address these challenges, ensuring their applications could handle the required transaction volume and provide a better user experience.
For applications requiring high-performance order books and a large number of transactions, especially those involving non-fungible tokens (NFTs), layer 1 solutions like Ethereum are not suitable due to their limitations in terms of transaction throughput and high gas fees. This necessity led to the rise of Automated Market Makers (AMMs) and the exploration of layer 2 solutions like ZK rollups to address these challenges. Robbie from Gods Unchained shared his experience during the launch of their original sale, where they faced high gas fees due to the large number of NFT transactions. At that time, there were no readily available solutions, and the team considered new layer ones or side chains. However, the emergence of the 0 knowledge proof and the scalability potential it offered for NFT transfers led them to choose a ZK rollup solution. Matt from Synthetics also emphasized the importance of liquidity and low latency for their application, which made layer 1 unsuitable for their needs. They turned to Loopring's layer 2 solution to replicate the performance of traditional order book platforms while maintaining Ethereum's security. Both teams recognized the need for layer 2 solutions early on and adopted them when they became available, ensuring their applications could handle the required transaction volume and provide a better user experience.
Moving to Layer 2: Loopring and Synthetix's Reasons and Journeys: Loopring and Synthetix, recognizing Ethereum's Layer 1 limitations, transitioned to Layer 2 solutions to enhance user experiences, reduce gas fees, and boost overall efficiency.
Both Loopring and Synthetix identified the need to move to Layer 2 solutions due to the gas fees and complexities on Ethereum's Layer 1. For Loopring, they saw an opportunity to operate across the entire stack and provide infrastructure, while Synthetix, a decentralized exchange, required infinite liquidity leading to shared state and high gas fees. At Devcon 5 in 2019, Synthetix was impressed by the Unipig demo from the Optimistic team, which showcased a faster and more efficient experience. This led Synthetix to take a serious interest in Optimistic Ethereum and start discussions in earnest. Both teams prioritize their users' interests and recognized the limitations of Ethereum's Layer 1 for their specific use cases. By moving to Layer 2 solutions, they aim to provide better user experiences, reduce gas fees, and improve overall efficiency.
The strength of Ethereum's developer community and infrastructure keeps panelists within the ecosystem.: Panelists chose Ethereum over alternatives due to its robust developer community, extensive infrastructure, and the ability to easily port contract code to layer 2 solutions like optimistic rollups.
The panelists, despite the availability of various Ethereum alternatives and layer 2 scaling solutions, have chosen to stay within the Ethereum ecosystem due to its strong developer community and infrastructure. Justin, from Synthetix, shared his experience of attempting to port contracts to EOS and encountering a lack of community support. He emphasized the importance of Ethereum's developer community and the significant investment in infrastructure and tooling. The panelists also discussed their reasons for choosing optimistic rollups, specifically the ability to port contract code almost exactly as is from layer 1 to layer 2, reducing the complexity of maintaining multiple code bases. Robbie from Immutable X mentioned exploring other options but ultimately deciding to stay with Ethereum due to its proven track record and the community's commitment to solving scaling issues.
Ethereum Maximalist's Perspective on Ethereum's Decentralization and Security: Ethereum's robust security and decentralized nature make it the best choice for decentralized applications and markets, with network effects, developer community, and future-proofed EVM compatibility enhancing its value.
The speaker is an ethereum maximalist who values decentralization and self-custody, and believes Ethereum is the best public blockchain for these criteria due to its robust security and decentralized nature. The speaker also emphasizes the importance of Ethereum security for scalability solutions like rollups, and prefers 0xPolygon's implementation of zk-rollups for NFTs due to its instant withdrawals and future-proofed EVM compatibility. Overall, the speaker values Ethereum's network effects, developer community, and security, making it the preferred choice for decentralized applications and markets.
Exploring Other Blockchain Platforms and Discovering zk-Rollups: The Loopring team considered building on Neo but faced technical challenges, ultimately focusing on Ethereum. When scalability became an issue, they turned to zk-rollups, becoming pioneers in building the first one from scratch despite its infancy.
The team behind Loopring explored the possibility of building on other blockchain platforms besides Ethereum three years ago, specifically Neo. However, they encountered technical difficulties and ultimately decided to focus on Ethereum due to its growing awareness, liquidity, and simplicity. When they encountered scalability issues, they turned to zk-rollups, which they believed was the best solution due to its potential to address their scalability needs without compromising security. The team, which was primarily based in Shanghai at the time, became pioneers in building the first zk-rollup from scratch, investing a significant amount of time and resources into the project. It's important to note that at the time, there were no live zk-rollups, and the technology was still in its infancy. The team's commitment to zk-rollups was unwavering, and they saw it as the best path forward for their project.
ZK Rollups vs Optimistic Rollups: Two Layer 2 Solutions for Ethereum Scaling: ZK Rollups and Optimistic Rollups are two Layer 2 Ethereum scaling solutions, each with unique advantages. ZK Rollups, used by Loopring, handle specific functions and offer fast withdrawal times, while Optimistic Rollups have potential for greater generalizability but require validity proofs and may allow less guarded behavior.
ZK rollups and optimistic rollups are two popular Layer 2 scaling solutions for Ethereum, each with their unique advantages. ZK rollups, which Loopring has implemented, offer the ability to handle specific functions, such as order book exchanges, and provide fast withdrawal times. Optimistic rollups, on the other hand, have the potential to be more generalizable but also come with questions about the need for validity proofs and the potential for less guarded behavior if there's no fraud. The implementers of these solutions are the ones who can answer the question of whether Layer 2 is really happening now, as mainstream adoption is on the rise. Loopring, which relies on ZK rollups, is already here and improving, but other popular apps and protocols are also joining the scene, making it an exciting time for the Ethereum ecosystem. The past year of building and iterating has led to more efficient and flexible Layer 2 solutions, making it an essential step for Ethereum's scalability during this bull run.
Improving Loopring's Layer 2 scaling solution and growth: Loopring's L2 solution includes a relayer, protocol, and new products like the exchange and wallet. They have real users and $250M worth of value on their ZK rollup, and are exploring fiat on-ramps and L2 token value accrual.
The Loopring team is continuously working on improving their Layer 2 (L2) scaling solution, which includes the relayer generating zk-SNARK proofs, the protocol written on top of it, and new products like the Loopring exchange and wallet. With real users and $250 million worth of value on their ZK rollup, they're just getting started and looking forward to continued growth. Another intriguing topic discussed was the potential for fiat cash on-ramps directly onto L2 platforms and the value accrual thesis for L2 tokens versus Ethereum. Monolith DeFi, a sponsor of the show, was highlighted as a solution for spending crypto anywhere Visa is accepted and offering onramps for getting fiat into DeFi.
Easier Access to DeFi with Monolith and Dharma: Monolith and Dharma simplify DeFi access, enabling users to connect fiat accounts with DeFi tokens and investments. Dharma's efficient bridge allows users to earn over $25,000 weekly, while Monolith offers ease of use. Layer 2 solutions like Optimism enable cost-effective smart contract deployment, paving the way for new ideas and DeFi Legos.
DeFi protocols offer yield opportunities, and there are tools like Monolith card and Dharma wallet making it easier for users to connect their fiat bank accounts with DeFi tokens and investments. Monolith is a new card platform where users can sign up and connect to DeFi universe with ease, while Dharma is a non-custodial smart contract wallet that allows users to bridge their bank accounts and access tokens on Uniswap or any vault in YFI. Dharma's fast and efficient bridge enables users to earn over $25,000 per week in DeFi, and the sign-up process is straightforward. Another development in the DeFi space is the progress of Layer 2 solutions like Optimism. Optimism is currently in a pseudo-mainnet stage, allowing early deployment, and plans are underway for a full real mainnet. Optimism is generalizable, making it easier for developers to deploy contracts similar to L1, requiring a compiler and a switch to Optimism. The team at Synthetics is working on enabling basic exchanging on their layer 2, and the excitement lies in the potential for new ideas and DeFi Legos as more teams and protocols develop on layer 2. In summary, the ease of access to DeFi through platforms like Monolith and Dharma, along with the progress of Layer 2 solutions like Optimism, is a significant takeaway from the discussion. These developments make it easier for users to enter the DeFi space and earn yield while offering developers a more accessible and cost-effective way to deploy smart contracts.
Optimism: Layer 2 Scaling Solution for Ethereum: Optimism, a layer 2 scaling solution, allows for gas savings of up to 2 orders of magnitude and is prioritizing Ethereum standards and tooling compatibility. Anticipated user migration from Synthetix could lead to improved trading experiences, but the utility and accessibility of layer 2 are still uncertain due to minimal rewards.
Optimism, a layer 2 scaling solution, enables the transfer of data and messages between layer 1 and layer 2, allowing for the creation of generalizable messages and the deployment of Solidity code. This results in significant gas savings, with a 2 orders of magnitude difference between layer 1 and layer 2 transactions. The Optimism team prioritizes compatibility with Ethereum standards and developer tooling. Synthetix, a vibrant Ethereum community known for its synthetic assets, anticipates a flood of users moving to layer 2 for faster and more authentic trading experiences. However, the utility and accessibility of layer 2 are still open questions, as the rewards sent to layer 2 are currently minimal compared to the significant total supply of Synthetix assets.
Revolutionizing NFT scalability with Immutable X: Immutable X enables zero gas fees for NFT creation and trading, improving user experience and making it easier for game developers and users to create and trade unique NFTs.
Layer 2 solutions, such as Immutable X, are revolutionizing the way we interact with non-fungible tokens (NFTs) in the crypto world. Unlike fungible tokens, which can be easily exchanged for identical items, NFTs are unique and require individual order books for each item. This makes scalability a significant challenge. However, Immutable X is set to address this issue by enabling zero gas fees for NFT creation and trading, while maintaining the same level of security as Ethereum. This user experience improvement is a game-changer for both game developers and users, allowing them to create and trade NFTs without the burden of high gas fees. The first ZK-rollup transfer of an NFT on Immutable X is expected to occur within 6 weeks, marking a major milestone in the NFT space. Overall, the innovation of tokenizing unique assets is leading to a surge in interest and investment in NFTs, with major partnerships and high-profile individuals entering the market.
NFT Marketplaces Evolving for Better User Experience: NFT marketplaces are improving for smoother transactions, addressing gas fees and long wait times, while community solutions tackle fragmented liquidity in Layer 2.
The NFT marketplace experience is evolving, with the goal of making it more user-friendly and instantaneous, while addressing concerns of fragmented liquidity in Layer 2. The worst-case scenario involves identical gas fees and long wait times for transactions, while the best-case scenario feels like magic. NFT marketplaces like Gods Unchained's are expected to roll out in Q1, allowing users to purchase desired cards. Regarding fragmented liquidity, Loopring and Synthetix, among others, acknowledge the issue but believe that smart people in the community will figure out solutions, such as cross-roll ups, to ensure Ethereum-level security guarantees. The next frontier is making it easier for users to move between different roll-ups, ensuring a seamless and interconnected NFT marketplace experience.
Exploring the future of blockchain scalability: The future of blockchain scalability relies on layer 2 solutions, but challenges like market rate for liquidity and composability remain. Horizontal scaling is the next frontier, and iterating, experimenting, and building MVPs are the way forward.
The future of blockchain scalability lies in layer 2 solutions like optimistic rollups and zk-rollups, but there are challenges to be addressed, such as market rate for liquidity, technical and behavioral pieces, and the unknowns around exit timing and market makers. Composability, the ability to connect different blockchains and applications, is essential, but it's not as seamless as having everything on layer 1. The next frontier is horizontal scaling, and while there are no clear solutions yet, the attitude is to iterate, experiment, and build minimum viable products (MVPs) to see what works best. The goal is to make transactions smoother and faster by connecting the dots between different rollups and reducing gas costs. The long-term vision includes taking fiat on-ramps and moving between different decentralized finance (DeFi) applications more efficiently.
Fragmentation of Ethereum's DeFi ecosystem due to layer 2 solutions: Critics argue fragmentation limits Ethereum's scalability, but proponents say innovation outweighs this concern. Effective bridging mechanisms needed to address coordination and interoperability between layer 2 solutions.
While layer 2 solutions like Optimistic Rollups offer scalability benefits, they also come with the trade-off of fragmenting the composability of Ethereum's decentralized finance (DeFi) ecosystem. Critics argue that this fragmentation could limit the true scalability of Ethereum. However, proponents argue that the ability to tinker and innovate on layer 2 platforms outweighs this concern. To address the issue of coordination and interoperability between different layer 2 solutions, there is a need for effective bridging mechanisms between them. The demand for such solutions is high, with many protocols expressing interest in joining the optimistic rollup ecosystem. However, challenges such as managing liquidity across multiple layer 2 solutions remain. Ultimately, the Ethereum community must find a way to preserve the composability of the ecosystem while also achieving scalability through layer 2 solutions.
Exploring Ethereum's Scaling Potential through Layer 2s and NFTs: Layer 2s offer unique opportunities for Ethereum to scale, allowing for high-security trading of real-world assets as NFTs and broadening the definition of scalability to include economic bandwidth and community network effects.
The discussion revolved around the potential of Layer 2 solutions, specifically Ethereum's scaling through Layer 2s, and the implications for NFTs and value flows. Robbie emphasized the importance of making Brooklyn (Ethereum) an exciting and innovative playground, and how NFTs can trade real assets on the blockchain with high security. He also questioned the definition of scaling Ethereum and suggested that it should mean preserving community network effects and allowing people to use the security of Ethereum for their logic. The speakers agreed that economic bandwidth is an essential aspect of scalability for money systems and that Layer 2s offer unique on-ramp possibilities for value to flow into Ethereum. Robbie mentioned the potential of capturing value from the real world, such as in-game items, through NFTs and Layer 2s. Overall, the conversation highlighted the potential of Layer 2s for Ethereum's growth and the importance of broadening the definition of scalability.
Ethereum's Infrastructure for NFTs and Digital Assets: Ethereum's large economic bandwidth and security capabilities make it a prime choice for NFTs and digital assets. Gaming companies are already exploring its use, and its potential goes beyond gaming items. However, challenges exist in making fiat transactions seamless, which could be addressed by crypto banks as fiat on-ramps.
Ethereum's infrastructure is well-positioned to support the growing trend of non-fungible tokens (NFTs) and digital assets due to its large economic bandwidth and security capabilities. Major gaming companies are already exploring the use of NFTs, and Ethereum's ability to support high-value assets makes it an attractive choice. NFTs have the potential to go beyond gaming items and encapsulate various aspects of the financial system. However, there are challenges to making fiat transactions seamless with Ethereum, such as regulatory issues and high gas fees. While crypto banks could potentially serve as fiat on-ramps to Ethereum, there may be business reasons for them not to do so directly with Loopring. Overall, the future of digital assets and NFTs lies in Ethereum's infrastructure, making it an exciting area for investment and innovation.
Layer 2 solutions crucial for Ethereum's price and growth: Layer 2 solutions like Loopring enhance Ethereum's value proposition by offering improved user experience and scalability without sacrificing security. Their economic bandwidth makes them attractive for exchanges, potentially leading to a direct fiat on-ramp and increased value.
Layer 2 solutions, such as Loopring, are crucial for Ethereum's price and growth. These solutions are seen as the saviors of Ethereum's price by some, as they offer improved user experience and scalability without sacrificing Ethereum's security as a settlement layer. The economic bandwidth provided by these solutions increases Ethereum's value proposition. Therefore, any solution that is not a roll-up on Ethereum right now can be considered an Ethereum competitor. The Winklevoss twins' involvement in the space and their exchange, Gemini, could potentially lead to a direct fiat on-ramp into layer 2 solutions, making it easier for centralized exchanges to access these tokens and increase their value. The economic reasons for exchanges to adopt layer 2 solutions are becoming increasingly compelling as the value locked in these solutions continues to grow.
Discussion on Ethereum's Layer 2 solutions and their impact: Layer 2 solutions like rollups expand Ethereum's transaction capacity while maintaining security. Debate ensued between Ethereum and Flow, with Ethereum's network effects and decentralized development being key advantages. Speakers emphasized the importance of Ethereum's security and the potential of roll ups to scale and enhance Ethereum's capabilities.
The implementation of Layer 2 solutions, such as rollups, on Ethereum is a massively bullish development for the network. These solutions broaden the economic bandwidth by allowing for more transactions to be processed off-chain while still inheriting Ethereum's security guarantees. The debate between immutable X and Flow was discussed, with the consensus being that Ethereum's network effects and the decentralized nature of its development make it a valuable and accretive platform. Matt, Robbie, and Tristan all agreed that Layer 2 solutions must rely on Ethereum's security, and they expressed excitement about the various implementations of roll ups and their potential to scale and enhance Ethereum's capabilities. The speakers also touched on the importance of decentralization and the role of the Ethereum Foundation in supporting different implementations of the protocol. In the long term, when Layer 2 is fully rolled out and Ethereum achieves maximal global adoption, the speakers envision their apps providing users with access to synthetic versions of any kind of asset they desire, among other possibilities. The potential for composability and the evolution of technologies like ZK roll ups and optimistic roll ups were also highlighted as exciting developments. Overall, the consensus was that Layer 2 solutions are a significant step forward for Ethereum and will contribute to its continued growth and success.
Leading Ethereum L2 Solutions: Loopring, Immutable X, and Synthetix: Loopring, Immutable X, and Synthetix are using Layer 2 (L2) solutions like zk-rollups to offer instant, cheap, and borderless access to Ethereum-based assets. Anyone can trade assets instantly and securely, and the panelists envision a global marketplace for unique assets. Start using L2 solutions today and spread the word about Ethereum and L2 technology.
Loopring, Immutable X, and Synthetix are leading the way in utilizing Layer 2 (L2) solutions, such as zk-rollups, to provide users with instant, cheap, and borderless access to various Ethereum-based assets. Matt Finestone from Loopring emphasized that anyone around the world can use their platform to trade any Ethereum-based asset, including synthetics, with instant finality and cheap transactions. Robbie Ferguson from Immutable X envisions a global marketplace for unique assets, while Justin Moses from Synthetix is focusing on deploying synthetics on optimistic rollups. The panelists discussed the freedom and security that L2 solutions offer, allowing users to keep their assets without fear of misbehavior or interference. The listeners are encouraged to start using L2 solutions today, as they are already available, and to give positive reviews on iTunes to help spread the word about Ethereum and L2 technology. The panelists also touched upon the importance of user experience and competition with other fintech applications, but ultimately, the focus is on the potential and benefits of L2 solutions.
Shift to Layer 2 solutions like Loopring gaining momentum: Cost-effective, instant transactions drive adoption of Layer 2 solutions despite lack of direct fiat on-ramps. Bridge between traditional finance and DeFi, but need user advocacy for fiat access and liquidity provision.
The shift towards layer 2 solutions, such as Loopring, is gaining momentum due to their cost-effectiveness and instant transaction capabilities. Despite the lack of direct fiat on-ramps, platforms like Loopring have already amassed significant value locked in them. The absence of fiat on-ramps is seen as an opportunity for centralized exchanges to be the bridge between the traditional financial world and the new decentralized finance (DeFi) system. However, for wider adoption, it's crucial for users to demand and advocate for the integration of fiat on-ramps into layer 2 solutions. Additionally, liquidity remains a challenge for these platforms, and providing liquidity can be a profitable public good. The optimism around layer 2 solutions is not just based on industry experts' opinions but also on the practical experience of using these applications. The difference this time around is that scalability solutions like Loopring seem more promising compared to previous attempts. It's recommended to explore these platforms and provide liquidity for potential returns.
The Ethereum community's commitment to long-term values: The Ethereum community prioritizes long-term benefits of decentralization, security, and community over short-term gains, demonstrated by the decision to stay on Ethereum despite financial and resource costs.
The Ethereum community values the long-term benefits of decentralization, security, and community over short-term gains or incentives to move to alternative blockchain networks. The commitment to these values was evident in the discussions between various DeFi implementers, including Robbie from Immutable X, who turned down significant offers to leave Ethereum. The cost of staying on Ethereum, both financially and in terms of resources, underscores the belief that the benefits of remaining on the network outweigh any potential bribes. This long-term perspective aligns with Naval Ravikant's advice to "play long-term games with long-term people." Ethereum's culture, soul, and community are essential aspects of the decentralized finance (DeFi) revolution, and these values are not present in competing projects that may offer financial incentives to leave Ethereum.
Ethereum's Bazaar Approach to Layer Twos: Ethereum's experimental bazaar approach to layer twos fosters innovation and efficiency, with major players like Uniswap leading the way in interoperability and integration of DeFi protocols on optimistic roll ups.
Ethereum's development approach, particularly in the realm of layer twos, is characterized by a "bazaar" style of experimentation, as opposed to the more traditional "cathedral" approach seen in projects like Bitcoin. This bazaar approach allows for a multitude of ideas and solutions to be tried and tested, increasing the likelihood of discovering the most effective and efficient solutions. The Ethereum ecosystem's embrace of chaos and experimentation is what makes it so bullish and exciting, as only the best ideas and structures will ultimately survive and thrive. Regarding layer twos, there is a sense of anticipation and uncertainty as major players like Uniswap navigate their next moves. The integration of multiple DeFi protocols onto the same optimistic roll up and the establishment of interoperability between roll ups are the next frontiers. The current holding pattern is expected to break once a major player makes a move, leading to a wave of innovation and progress.
The transition to Layer 2 solutions on Ethereum: The process of transitioning to Layer 2 solutions on Ethereum may be painful in the short term with high gas fees, but it will bring long-term benefits such as lower fees and expanded liquidity. Long-term investors should focus on fundamentals and consider investing in Ethereum, Bitcoin, or decentralized index funds.
The transition to Layer 2 solutions on Ethereum is ongoing and will bring both opportunities and challenges. While some users have already experienced the benefits of lower gas fees and expanding liquidity on the margins, the average user has yet to feel the full impact. The process is expected to be painful in the short term, with gas fees remaining high for several months. However, the narrative around Ethereum's competitors, or "ETH killers," with larger market caps, may continue to drive short-term gains based on market sentiment and speculation. Ultimately, the economics of high demand for Ethereum and the lack of a fully-built L2 ecosystem on Ethereum may lead some users to explore alternatives in the short term. For long-term investors, focusing on fundamentals and investing in Ethereum, Bitcoin, or decentralized index funds may be a more stable strategy.
Ethereum's Community, Ecosystem, and Trustless Economic Bandwidth Offer Unique Advantages: Despite high gas fees, Ethereum's community, ecosystem, and trustless economic bandwidth provide unique advantages, making it a preferred choice for many in crypto.
Binance Smart Chain's DeFi application, PancakeSwap, is experiencing significant volume due to Ethereum's high gas fees. However, the value and scalability of Ethereum go beyond just transaction volume and market cap. Ethereum's community, ecosystem, and trustless economic bandwidth provide unique advantages that cannot be replicated on Binance Smart Chain. Additionally, the current NFT market is dominated by high-value NFTs due to gas fees, but the future holds promise for microtransactions and smaller NFTs on Ethereum's Layer 2 solutions. These Layer 2 solutions act as reservoirs for economic activity, absorbing transactions when Layer 1 fees become too high. Overall, Ethereum's long-term value and potential outweigh the current challenges, making it a preferred choice for many in the crypto community.
Layer 2 solutions absorb economic activity to secure Ethereum: Layer 2 solutions, like Optimistic Rollups and Zero-Knowledge Rollups, enhance Ethereum's security by handling economic activity during high gas fee periods and introduce new use cases, ensuring continuous innovation and demand cycles for both Layer 1 and Layer 2.
Layer 2 (L2) solutions, such as Optimistic Rollups and Zero-Knowledge Rollups, act as "security batteries" for Ethereum's main Layer 1 (L1) by absorbing economic activity during periods of high gas fees on L1. This constant economic activity on L2 creates a reservoir that Ethereum can tap into when demand for L1 decreases, ensuring the network's security. Additionally, L2 unleashes new use cases, like micro-transactions, which are not feasible on L1 due to its limited transaction throughput. As a result, the innovation and demand cycles will continue for both L1 and L2. However, it's important to remember that Ethereum and DeFi involve risk, and users could potentially lose their investments.