Dawn of the Layer 2 Era - The Daily Gwei #290
Venturing into the lands of layer 2.
Well, it finally happened, Uniswap v3 is now live on Optimism - a layer 2 protocol built on Ethereum. In April, I wrote about why I thought Uniswap on layer 2 was going to be a game-changer and I haven’t changed my opinion on this one bit. Not only is it currently 10x cheaper to do trades on Uniswap L2 (and will get cheaper over time), it’s also near-instant and getting funds onto Optimism is a painless experience.
The layer 2 rollout on Ethereum is still in its very early stages but I can already tell that we’re going to look back on this time in a few years and point to it as the period that kick-started the “mass adoption” phase of Ethereum. Up until now Ethereum has basically been for more advanced users and those who could afford to pay the high gas fees and deal with the clunky UX/UI. With a proper layer 2 ecosystem, the amount of people we can begin onboarding to Ethereum grows much, much larger and we’ll even be expanding the design space that developers have access to.
This all reminds me of how the rollout of DeFi has played out over the years. MakerDAO is widely considered the first DeFi project but there were many others being built during 2017 and even earlier (Vitalik even spoke about financial applications on blockchains in the original Ethereum whitepaper). Some of you may remember EtherDelta (one of the first functioning DEXs), 0x’s first iteration (a simple on-chain RFQ system) and did you know that even Aave was around in early 2018 (it was known as ETHLend back then). Obviously DeFi has come a very long way since those days and has evolved into a bustling ecosystem with hundreds of projects and thousands of developers.
NFTs started out the same way as DeFi - incredibly clunky and, something that effected NFTs much more than DeFi, the high gas costs of Ethereum’s layer 1. It’s funny looking back to CryptoKitties mania (during December 2017/January 2018) and remembering how people were absolutely losing their minds over 50 gwei average fees (and saying that Ethereum was completely broken because of that) whereas that gwei price is considered relatively normal today. On top of that, we now have layer 2 solutions like Immutable X and sidechain solutions like Polygon’s PoS chain and Axie Infinity’s Ronin to help scale the NFT ecosystem.
The one thing all of these use-cases have in common is that they require much more scale in order to reach the mass market - and that’s exactly what the layer 2 ecosystem will give them. It’s going to be a slower rollout than most people would like, but eventually Ethereum’s layer 2 ecosystem will be so vibrant that we’ll forget about how long we had to wait to get there - just like how we’ve forgotten about how clunky early DeFi was.
Have a great day everyone,
Anthony Sassano
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All information presented above is for educational purposes only and should not be taken as investment advice.
Hi Anthony,
Curious where you and others see the wind blowing:
Optimism?
Polygon?
Multiple L2s with adoption?
Optimism has stated that at some time in the future they will move to a decentralized solution. But they do not have any real plans for how this is done (they are focused on getting something working).
The problem I see is that if they indeed do move to a decentralized solution in the future they will hit the same bottlenecks on transaction throughput & fees that the primary ETH chain is experiencing. Maybe they can make that optimistic sidechain 10x cheaper than the primary ETH chain, but even if they do that it will still run out of room pretty quick. What is needed is a 10,000x to 100,000x improvement in costs (fees) to allow it to scale to the masses - and I just do not see this with the optimism design.
So Anthony, a discussion of how much these L2 solutions could actually scale to would be nice to have....