Theme： Congestion on the Chain, Who Will Emerge on the Layer 2 Track
Guests
Charlie Hu — Head of Polygon China
“My name is Charlie Hu, I am currently the head of China in Polygon. I joined crypto space since 2016, but knew Bitcoin I was in Amsterdam in 2013 already. I have been actively building community and ecosystem since 2017, from my previous experience in Polkadot China, now helping out for Polygon China.”
Bowen Shen — Growth Lead of NEAR
“My name is Bowen, and I am the growth lead at NEAR Foundation. My focus at NEAR is to work to foster asset growth and defi application growth on NEAR. Great to be here to share with you updates about the NEAR project.”
Michael Zhou — Core Developer at Celer Network
“I’m Michael from Celer Network and I’ve been working as a developer for the project since 2018. Celer is a comprehensive layer-2 solution for Ethereum and other EVM-compatible blockchains. Over the past three years, we have explored and built multiple scaling technologies, including state channels, sidechains, and most recently rollups.”
AMA content
1、Please briefly introduce your positioning and characteristics of the project!
Charlie Hu
Polygon’s former name is called Matic Network, founded in 2018 from India. Matic was a originally an EVM compatible Ethereum side chain, plasma pos chain which share the security from Ethereum. Through the last 2 years, Matic has successfully built the layer 2 and side chain scaling solution around Ethereum. Matic had the branding and technology upgrade this February called Polygon.
Polygon now is the full stack scaling solution, aiming to build the interchain around Ethereum, the Etthereum’s internet of blockchain with the Swiss Knife style of full stack scaling solutions within their technology solutions including zkrollup, optimistic rolls and many other scaling modules.
Polygon is fully EVM compatible and very developer friendly for Ethereum developer, with multiple magnitude of less gas fee and high TPS blockchain performance.
Many defi and nft projects that built on Ethereum have now migrated and integrated with Polygon as their scaling solutions such as AAVE, sushiswap, OpenSea etc
More adoptions are coming in the pipeline.
Bowen Shen
NEAR’s positioning is a quite interesting, we are position both as a Layer 1 publichain and a layer 2 to Ethereum that addresses market problems that we currently face. mainly scalability, affordability and usability
In general, NEAR is PoS L1 public blockchain that focuses on scalability, usability and interoperability.
It uses a novel sharding approach called Nightshade to parallelize computation on chain and automatically increase capacity when needed, resulting in more stable fees, 1-second block times and theoretically infinite scalability
Here is an example
However, we recently launched AURORA, 100% Ethereum compatible environment on NEAR.
It aims to solve the scalability problem faced by Ethereum and to provide Ethereum Layer-2 Experience on NEAR.
Michael Zhou
Celer is a comprehensive layer-2 solution for Ethereum and other EVM-compatible blockchains. Over the past three years, we have explored and built multiple scaling technologies, including state channels, sidechains, and most recently rollups.
We started off with launching the first large-scale generalized state channel network on Ethereum which enables instant micropayments and dApp interaction between two parties. The networks is currently powering our gaming platform, CelerX, which has gathered a large number of users.
We then went on to explore other scaling solutions, specifically rollups. In 2020, we proposed and demoed the architecture of “hybrid rollup”, a combination of sidechain and rollups to balance security, usability and cost for different applications. This year, we shifted our focus to Layer2.Finance, a specialized rollup solution to bridge users on layer-2 with numerous DeFi protocols on layer-1.
You can think of Layer2.Finance as a subway network under DeFi City. Now, instead of being forced to hail the expensive taxi service to get to these DeFi shops individually, multiple people can take our public transportation solution and drastically reduce their costs. You pay much cheaper DeFi costs because instead of paying one full transaction cost (the limo fee) for every single fund allocation demand, Layer2.Finance essentially splits the cost of one single layer1 fund allocation transaction across all the users on board the same layer2 subway train. If there are 100 people on the train, you can easily lower the cost by 100X.
We will keep improving our scalability offerings and bring internet scale to all blockchains.
2、Since August last year, complaints about the congestion on the ETH chain and the high gas cost have been heard loud, and the upgrade of Ethereum has been postponed. What is the impact of this congestion on the industry?
Charlie Hu
I remember last year, this June, it was the beginning the period that defi degens community people started to do research or even started their yield farming in YFI and later on all other defi yield farming protocols.
I think the ETH gas fee kept reaching all time highs in the last 12 months due to the booming market demand, many token launch mechanism such as IDO and LBP, which drives lots of users to do trades and iniate transactions all at the same time. Ethereum had many gas war types of events which made huge congestion in the network. With their network limitation, it’s inevitable that users will complain about the high gas cost and the debate about the non-clean defi due to its current POW blockchain.
The technology limitation and issues about current Etherum network really pushed the demand of new scaling solutions and the web3 blockchain infrastructures. That’s also why polygon, with their full stack scaling solutions, had made huge adoption growths from the community.
I believe competition and new innovation is always important growth driver for the blockchain industry, for the better, more secure and higher performance blockchain industry. With that, we can achieve the mass adoptions and embrace more non-crypto people and sectors to enter the blockchain field, use the blockchain technologies for their applications. I see this congestion as the opportunities and challenge for the industry and feel positive for the new blockchain development solutions such as Polygon.
Bowen Shen
I am a business person, I look at the industry from the business perspective.
I think one of the quintessential problem on Etherem is, it’s decentralization feature which suppose break the centralized control barrier to serve more underserved people in our society, but due to its high gas cost, it actually narrows down to serve the group of wealthier people.
Graph: gas fee increased significantly over time
Users are paying up to hundreds of dollars for a single transaction on Ethereum, just to capture DeFi incentive, so we can see that, all the transactions can only be affordable by the DeFi users. The consequence is, Ethereum market is great, 238B market cap, 53B TVL,
But it squeeze out the social applications, game applications, USDt users, the poorer users that cannot afford high transaction fee, and Ethereum really become the ground for the rich users.
Michael Zhou
A congested Ethereum mainnet and prohibitively high gas cost severely hinder the growth of DeFi. We saw that the total value locked (TVL) for DeFi projects on Ethereum plateaued and flattened as the average gas price reached a whopping number of high hundred gweis.
In the meantime, existing users with small budget are straight up earning negative APYs in DeFi after subtracting the gas cost overhead.
As a result, many new DeFi projects migrated to more centralized offerings such as BSC and Heco. While this is not a particularly bad thing, it pressed the Ethereum community to accelerate on the deployment of true layer-2 solutions.
We are glad to see that great progresses are being made across the board, and we are happy to join the effort to scale DeFi on Ethereum with Layer2.Finance.
3、As for the solution to the congestion on the chain, what are these that have been verified solid?
Michael Zhou
I’ll share my two cents.
Congestion can be mitigated with several solutions across both layer-1 and layer-2.
On layer-1, one way is to split the users into two groups: regular users and “premium” users. The former are casual users who care less about time to confirmation for their transactions, while the latter are usually professional DeFi traders and arbitrageurs who are very sensitive to transaction latency.
Projects like FlashBots implement the concept of “MEV” (Maximal Extractable Value), which let the latter group reserve a part of each mined block by directly paying the miners a share of their profit instead of raising the gas price for everyone. The idea is similar to splitting highways into regular lanes and a fast lane. It has proven very effective at reducing the gas price during relatively “calm” periods of the Ethereum network.
The other highly anticipated change to layer-1 is EIP-1559, which changes the fee mechanism to include a basefee portion that fluctuates with the demand of block space, and a tip portion to pay the miners decided by the user. Once in effect, I think EIP-1559 will also contribute to reducing the congestion and gas price.
On layer-2, we have many offerings to bring scalability. State channels, plasma and rollups are all valid solutions with different tradeoffs and applicability. While sidechains are technically not layer-2s from a security perspective, they are also very useful at redirecting some of the demand for block space.
4、Since there are other solutions, why do you pay attention to Layer 2?
Charlie Hu
Thanks for the question. There are indeed quite some scalcing solutions, to be honest, Polygon is not only layer 2 solutions any more, which was said by the core lead developer of Polygon recently.
To explain in the more technical way, Polygon is a Layer-2 scaling solution created to help bring mass adoption to the Ethereum platform. It caters to the diverse needs of developers by providing tools to create scalable decentralized applications (dApps) that prioritize performance, user experience (UX), and security. Polygon achieves this in large part due to the underlying technical architecture of its Proof-of-Stake (PoS) Commit Chain and its More Viable Plasma (MoreVP) L2 scaling solution. Polygon’s PoS blockchain serves as a Commit Chain to the Ethereum mainchain, attracting over 80 Ethereum dApps to its platform that transact without instances of the network congestion common to Ethereum and other Proof-of-Work (PoW) blockchains.
Polygon differs from its predecessor in that it’s approach is now multi-faceted. Polygon seeks to transform Ethereum into a true multi-chain ecosystem that benefits from all kinds of Layer-2 scalability, not just the initial implementations provided by the Matic Network. Polygon presents a suite of solutions to Ethereum’s scalability crisis — hence the ‘poly’ portion of the project’s updated nomenclature. Polygon still deals primarily with sidechain connectivity and runs its main PoS chain as of April 2021, but it has plans to expand its toolbox to include other Layer-2 solutions like zkRollups and Optimistic Rollups, standalone sidechains, enterprise chains, shared security chains, as well as interchain communication protocols. As such, Polygon describes itself as a Swiss Army knife of Ethereum scaling and infrastructure development.
It is important to note that Polygon’s already-proven infrastructure — its PoS chain and plasma sidechains — will continue uninterrupted. Polygon’s new additions and scaling solutions will be entirely built around these cornerstones. Polygon’s scaling solutions have so far seen widespread adoption with 250+ Dapps, ~20M+ txns and ~390K unique wallet users.
Therefore, from polygon side, we need to clarify that polygon is not only a layer 2 solution but rather the full stack scaling solutions.
Bowen Shen
To be clear, the context is we are facing a market problem of scalability
and we are trying to solve it using various type of scaling solutions, that include various public L1 chains, such as NEAR, Sol, Polkadot, and many L2 solutions, Celer, Matic, and Aurora.
Couple reasons to focus on layer 2 solutions:
1. Layer 2 focuses to scale up the Ethereum transaction without much / minimal sacrifices to the security level of those transactions. Ethereum has established its long reputation and trust in the community, and the security of the network has been tested to handle various odd events and with time. It’s one of the core asset that Ethereum community has, Layer 2 scaling solution, do not exist on a compeittive level to Ethereum, but aim to help Ethereum asset / users to scale.
2. Developers in this industry are much more experienced with coding in solidity and build smart contract on EVM, hence, another purpose why we focus on L2 is to help those developers to have an easier transition to a scaling network.
Michael Zhou
Well, there’s no “black or white” dilemma to solving the problem of congestion. As I described above, many solutions across layer-1 and layer-2 can work together to achieve synergy. Celer is focusing on layer-2 solutions because that’s where our expertise is, but we will happily work with teams that are more focused on layer-1. In fact, ideas like MEV will also show up in layer-2 and the design space will be larger and more interesting there.
5、The competition on the current Layer 2 track is very fierce. Uniswap also announced that it will apply the Layer 2 solution of ZK Rollup. Regarding the application of Layer 2, do you have a focus?
Charlie Hu
yeah indeed, there are quite some other layer 2 or scaling solution teams come out and build some solutions in the space. We see that a good thing. We never believe in one solution fit for all.
In terms of Polygon’s focus, I think I mentioned couple of times already that polygon aims to build the full stack scaling solutions.
Last week, polygon launched their SDK. Here is the simple overview.
Polygon SDK is a modular, flexible framework for Ethereum scaling and infrastructure development.
Our goal for it is to become the go-to framework for this type of development, by allowing developers to quickly and easily build and launch multiple scaling and infrastructure solutions.
Polygon SDK architecture is based on three major design concepts/requirements:
Ethereum-compatibility;
Modularity;
Extensibility.
Polygon SDK will also support and offer a number of auxiliary solutions and products which will extend Polygon functionalities, improve developer experience and introduce support for specific use cases. Examples of such solutions and products include:
1. Inter-chain messaging protocols and modules;
2. Data availability services;
3. Adaptors for external blockchain networks;
4. Enterprise modules and products;
5. Premium products and solutions etc.
So you can see, it’s quite extensive and large scope of scaling solutions from Polygon.
Bowen Shen
The level of competition between L2 solutions are fierce indeed, but they are healthy so far. Ones are pushing another to develop, to go to market, to create a great economy. The ultimate beneficiary of this competition will be the Ethereum users.
Regards to projects:
so far we can see about 10% of the projects probs have selected their scaling solutions, 70% of the projects have diverted multichain expansion plans, and 20% have are yet to be watching, but really lot of them are just temporary voice.
We will definitely see a second of economic reallocation to various L2 solution as they mainnet this year and launched campaigns to compete for projects and users.
NEAR / Aurora’s focus on L2 expansion is to cooperate with projects that share long term value with NEAR. We have two solutions for projects that interested in NEAR, for projects are more risk averse, and seeking for quick onboarding solution, they onboard via Aurora; and for projects that willing to take a step further, we have various programs, such as Grant (https://near.org/grants/), OWC (https://www.openwebcollective.com/), DeFi Labs to help them to build on NEAR native runtime, which we believe has a long term advantage to scale DeFi projects.
Michael Zhou
I think Uniswap is going to launch on Arbitrum first then Optimism when they are ready. Indeed, we notice that the majority of other projects are already making great progress on bringing EVM support to rollups, therefore we decided to do something more specific to DeFi with Layer2.Finance. Our current focus is to add capability to this customized rollup solution, adding more profitable strategies, enabling transfers of tokens and protocol shares, and launching the first-ever liquidity mining campaign on a real layer-2 platform.
Another effort we are working on is called cBridge, a cross-chain bridge for ERC20 tokens on all EVM-enabled layer-1s and layer-2s. In the first iteration, we are launching a trustless and decentralized cross-chain token transfer service based on hashed timelocks, which is the underlying technology of our existing state channel network. Please stay tuned for our updates on both Layer2.Finance and cBridge.
6、How does Layer 2 fit DeFi better, or in other words, is Layer 2 applied so that DeFi can withstand the impact of the black swan on liquidation?
Charlie Hu
indeed, there are quite some security attacks, flash loan attacks happened in the space, which led to more than 160 million USD loss in the market.
The cases keeps happening due to some security loopholes on the blockchain design, but also on the defi application architect design.
Layer 2 or scaling solutions aim to avoid the network congestion and make it less possible for hackers or bad actor people to front run and do malicious attacks.
Polygon is keeping engaging and providing grant, technology support and work closely with high level code auditing, security solution companies in the space in order to make sure all the polygon defi projects are secure and reliable.
To talk about how layer 2 or Polygon’s scaling solution fit better for defi. We should talk back on the Polygon SDK. It aims to support building and connecting two major types of solutions:
1 Secured chains (aka Layer 2 solution): Scaling solutions that rely on Ethereum for security instead of establishing their own validator or miner pool. Polygon SDK aims to support all major Layer 2 solutions such as Optimistic Rollups, zkRollups, Validium, Plasma (already implemented as part of the Polygon platform) etc, thus basically becoming a one-of-a-kind “Layer 2 aggregator”. Secured aka Layer 2 chains are a good fit for (i) projects that require the highest level of security and (ii) startups, i.e. young projects and communities, unable to establish a sufficiently decentralized and secure validator pool.
2 Stand-alone chains: Sovereign Ethereum chains, normally fully in charge of their own security, i.e. with their own validator or miner pool. Major examples of such chains are sidechains and different types of enterprise chains. Stand-alone chains offer the highest level of independence and flexibility, with the tradeoff of a normally lower level of decentralization and security. These chains can (i) interact with Ethereum via different types of bridges for transferring assets and/or arbitrary messages or (ii) rely on Ethereum in some way, e.g. for hosting some critical parts of the application logic or for achieving stronger finality and security via periodic checkpoints/commits. Stand-alone chains are often a good fit for (i) enterprises, (ii) projects that do not require the highest level of security and (iii) projects with strong communities, capable of establishing a sufficiently decentralized and secure validator or miner pool.
Polygon believe the it can help the defi projects to achieve their scalability without sacrificing their security level.
7、What do you think about the future of layer2 if ETH2.0 launches？
Bowen
Persoanlly, not a super believer of ETH2.0
We either to see specialised layer 2 solutions vertically to address scalability / affordability to segmented markets. Or we are there to see multichain expansion to chains such as NEAR, polkadot, cosmos. But I certainly hope Eth2.0 can prove me wrong within 3 years.
