Hackernoon logo2021 and the Rise of Layer-2 Blockchain Solutions by@gedalexander

2021 and the Rise of Layer-2 Blockchain Solutions

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@gedalexanderGed Alexander

Blockchain, cryptocurrency and DeFi writer exploring the innovations of tomorrow.

With Ethereum’s Gas prices fluctuating more than ever and DeFi protocols rushing to implement Layer 2 solutions, these 4 projects are worth keeping an eye on

The recent mania that saw both Bitcoin and Ethereum rocket in price has meant thousands of new eyes are on the world of cryptocurrencies. Popular exchanges have struggled under the weight of so many new registrations, and transaction numbers multiplied ferociously over Christmas and New Year.

The now well-known issue facing Ethereum's model is that when transactions soar, so do the transaction times and prices and this time was no different: ETH transaction fees have risen by almost 400% since January 1st 2020 and with interest growing this is probably not the last time we’ll see numbers this big.

In order for blockchain technology to scale efficiently, this needs to change. Various pioneering projects have shown promise as possibly effective layer 2 solutions that will stem the increasing transaction costs and slow speeds we all have had to to deal with. Layer 2 solutions can execute complex computations using structures built on top of the blockchain instead of within it, whilst simultaneously keeping the most crucial and sensitive data on-chain, preventing bottlenecks, reducing congestion and increasing overall throughput.

Here are four of the most interesting layer 2 projects making noise in the space in 2021:

XDAI

xDai is an Ethereum-based sidechain with a stablecoin native currency and beginner friendly tooling. The project has been around since 2018 and as a sidechain relies on a limited validator set for security. The platform’s native STAKE token is used to secure the xDai network through a Proof of Autonomy consensus, which is similar to Proof of Authority but for DAOs.

xDai uses a version of delegated Proof of Stake (DPOS) consensus called POSDAO to offer reduced fees and faster transaction times, with 5 second transaction speeds and transaction fees as low as $0.01 for 500 transactions amongst features that xDai boasts.

Tenet

Tenet is a layer 2 AMM “super connector” that aims to provide faster cross-platform, cross-chain exchange of assets by use of their AMM Integration Framework. The project also offers amongst other things a whitelabel geyser solution that any DeFi project can use to easily create incentivized liquidity pools on various protocols across Binance Smart Chain and the Ethereum blockchain. 

Tenet looks to  provide a suite of products including liquidity accelerators, liquidity operation tools, a DeFi trading aggregator and long tail asset lending solutions with its basic function serving as a cross-chain Automated Market Maker (AMM) connector that provides a decentralized liquidity tap for various tokens.

With a fully customizable liquidity tap configuration available to project teams, projects can choose AMM platform options in the initial phase, native token issuance protocol options and various other aspects of overall architecture. Tenet recently conducted a public sale of TEN tokens on 5th January 2021 at 7:00 UTC on Polkastarter, with 300,000 TEN ERC20 tokens sold at a price of $1 USD per 1 TEN through two separate pools.

Loopring

Loopring enables developers to build non-custodial order book-based exchanges with high-throughput on the Ethereum blockchain by leveraging Zero-Knowledge Proofs. In June last year Loopring released Loopring Pay, a new payment product looking to become the “PayPal for cryptocurrency”. The platform is built on top of Loopring v3.0 enabling anyone to send both ETH and ERC20 tokens without paying Ethereum’s notorious Gas fees. 

Loopring this month saw strong traction as attention again turned to Ethereum fees and the network became increasingly congested, and the Loopring platform saw it’s highest volume ever on January 4th 2020 with just under $2 million traded. Following the launch of it’s Layer 2 high-speed automated market maker back in December 2020 Loopring is now in the process of launching liquidity mining incentives on the platform.

Matic Network

Emerging back in May 2017, Matic Network is a layer 2 blockchain application platform that enables developers to deploy applications with faster and cheaper transactions whilst maintaining a high level of security. Matic aims to make it easier and more cost-efficient to build and deploy decentralized applications securely by utilising an adapted version of Plasma with PoS based sidechains.

Matic Network uses an adapted version of Plasma with PoS based sidechains and September 10th last year the project released its proof-of-stake token bridge, allowing faster transfers between the Ethereum and Matic networks. Matic’s Side-chain solution provides much faster and extremely low-cost transactions with finality on the main Ethereum chain, and the project's token price has risen by 92% since multiple applications chose to use the network’s layer-two solution.

Conclusion

As the need for scalable, affordable and faster transactions increases, and the blockchain and DeFi sectors grow larger, the requirement for layer 2 solutions will only increase at least until Ethereum releases it’s scaling solution Optimism. Optimistic Ethereum, the beta or soft version of its scaling solution is scheduled to emerge on January 15th.

There are also rumors in the blockchain space that Uniswap plans to launch a layer-two test on Optimistic Ethereum but this has not yet been confirmed.

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