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“Layer 2” crypto technology has come into further focus recently as it becomes crucial for growing blockchains to successfully scale. Stockhead chats with DeversiFi’s Will Harbone and Polygon Hermez’s Tony T about this powerful crypto narrative (and a few other things). Layer 2s – what’s the deal?
Hi both… can you please give me a sense of the importance of Layer 2 scaling solutions and how they impact greater financial inclusion in crypto?
Will Harbone (CEO, DeversiFi): Sure, so as crypto reaches ever larger numbers of people, we need to find ways to scale the technology.
Crypto has the potential to give people who are on the fringes of the financial system a free wallet in their pocket that is automatically connected to trade, spend, and borrow. However, today with L1s the cost of participating and getting started is just too high for most.
Layer 2s [secondary blockchain protocols built on top of Layer 1 chains such as Ethereum] will change this radically, with transactions costing only fractions of a cent, and the ability to create a wallet and start using it for free.
Tony T: (Head of Comms, Polygon Hermez): L2s are important because they further reduce the entry barriers helping people enter the DeFi [decentralised finance] and NFT [non-fungible token] sectors. In the past, users had to go through the Ethereum Layer 1, congesting the network and having to pay high gas fees. However, the L2 solutions now being built are pretty much reducing gas fees substantially.
Won’t the (eventual) completion of Ethereum 2.0 make Layer 2 solutions less relevant for that network? Isn’t Eth2 meant to be fixing congestion/gas fees and scaling issues?
WH: Eth 2.0 and Layer 2 will work in tandem to help scale the Ethereum ecosystem. Either of them on their own improve the situation, but demand for block space will keep growing exponentially as more and more applications come online. Just as with the growth of the internet, we are only just seeing the first stage of potential use cases, and as it grows we will need more space than either Layer 2s or ETH 2 with sharding can provide on their own. Will Harborne, CEO and co-founder of DeversiFi. ZK-rollups – next big L2 narrative
I’ve been seeing ZK-rollups (zero-knowledge) scaling technology referred to as crypto’s “next big narrative”. Do you agree? Are there good investment opportunities in that particular L2 area?
WH: Yes, this is certainly shaping up to be one of the biggest narratives of 2022. Many people are seeing that ZK-rollups are setting up to go head to head with the big L1s of 2021 (Solana, Avalanche, and LUNA). Most of these rollups have not yet launched tokens, but many are guessing that once they do, the narrative will really come into its own and attract huge amounts of capital, development, and projects to launch on ZK-rollups.
So far there are a few live tokens, such as MATIC, DVF, or DYDX which are aligned with this potential opportunity, but in the future, we may see StarkNet launch a token, as well as zkSync, and other rollups. There will be a huge number of opportunities for investors in this sector, but it’s still early!
TT: Absolutely, so Polygon Hermez is an open-source ZK-rollup. And Polygon (MATIC) is on a spree to solve Ethereum scaling solutions. The investment in Hermez is one of the many steps Polygon has taken to enhance Ethereum’s capabilities via ZK-rollups. Tony T, Polygon Hermez Head of Communications. The Polygon connection
Can you give me a bit of background on Polygon and its role as a Layer 2?
WH: Polygon was one of the first networks to offer a solution where people could access DeFi at a much lower cost, which resulted in a lot of developers and builders starting to use its solution. But its initial version was “proof of stake”, which is not the most secure way of operating in DeFi.
So today, Polygon has a vision to start upgrading its system to use zero-knowledge proofs and build rollups that will become a game changer to scale Ethereum. But DeversiFi has actually been prioritising the ZK-proof scaling solution from much earlier.
You not long ago launched an L2 bridge between the Polygon network and DeversiFi platform, is that right?
WH: Yep, so there are these two ecosystems, a Polygon one – a network with many different applications and developers, and DeversiFi – a network optimised for decentralised finance on ZK technology.
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source ‘We can scale this to everyone in the world’: DeversiFi and Polygon Hermez on Layer 2 tech
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