This article was first published in December 2020 by the xDeFiLabs team on Medium.
1. Ethereum Layer 2: Insights from John Wu, Senior Scientist and DOT Community Developer
At the end of 2019, shortly after Vitalik proposed the concept of zkrollup, several teams presented their respective implementation prototypes of zkrollup. Aiming to solve triangular arbitrage, the Silicon Valley team Loopring iterated on the core technical points and successfully launched its own zkrollup implementation on its decentralized order book exchange loopring.io in March 2020. However, it wasn’t until the DeFi ecosystem exploded in July 2020 and the launch of Uniswap’s token in September caused Ethereum’s network congestion, with gas fees approaching 1000 Gwei, that people began to realize that scaling the main chain was not a problem to be considered only in 2025.
Loopring was just one of the many teams that sensed the necessity of Ethereum’s scaling early on. The Raiden Network project, as a state channel project on Ethereum, easily evokes comparisons to the Bitcoin Lightning Network and the HTLC scheme, stories that are no longer fresh. At the 2020 Stanford Blockchain Conference, technical developers and senior cryptographers were still engaged in heated debates over side-channel attacks.
Despite Loopring DEX’s token suddenly surging nearly tenfold three months after its launch, bringing unexpected joy to its investors, the Loopring team is certainly not the only provider of rollup solutions. ZK-Sync and Fuel Labs have proposed competing zkrollup solutions, as well as mutually exclusive Optimistic-rollup solutions.
Optimistic-rollup was initially referred to as “Minimal Viable Merged Consensus” before being renamed Optimistic-rollup. It adopts an optimistic approach, trusting that validators will not act maliciously, assuming data is correct unless fraud proofs are submitted, thus reducing the lengthy trust initialization of zkrollup.
Recently, in the roadmap update for ETH2.0, L2 has been placed in a very important position in the short to medium term. Many who are optimistic about L2 or skeptical of sharding believe that if L2 continues to develop well, the ultimate vision of ETH2.0’s sharding may be replaced by the status of Layer 2.
In fact, current L2 solutions have already demonstrated their powerful capabilities in transaction scaling, but the main breakthrough for L2 is likely still in the implementation of arbitrary logic (i.e., smart contracts). For sidechains, the main issue is the lack of a sufficiently decentralized bridge. State channels and Optimistic Rollups work well in the happy path, but need to handle various disputes (claims) in real production systems. ZkRollup requires continuous improvements in engineering technology. In fact, solutions based on proof systems (like ZkRollup) can match L1 in user experience if they can solve performance issues, support system complexity, and be developer-friendly. Currently, ZkRollup technology is developing towards a general smart contract language and compiler, with MatterLabs (the ZK-sync team) being a good example of progress in this direction. It can be imagined that if other claim-based systems cannot gain widespread acceptance in the market in the coming years, they will ultimately have to give way to those solutions based on proof systems that have matured technically.
2. Competitive Landscape of Polkadot Parachains/Cosmos Ecosystem: Insights from Senior Polkadot/Cosmos Developer
2.1 Why Are Developers Eagerly Concerned About Cross-Chain Solutions?
Eric (@eri0xlei), CTO of the xDeFiLabs team and a developer with deep experience in multiple main chains like EOS, ETH, and DOT, believes that DOT can first serve as a migration direction for the ETH DeFi and NFT ecosystem.
When designing the overall architecture of XDEX, the xDeFiLabs team engaged in long and intense discussions about the price formation mechanism of long-tail Altcoins on the Ethereum blockchain, which is robust and has high manipulation costs. In 2020, when combining the account model structure of ETH and smart contracts with flash loan products, new and serious issues arose in asset pricing formation. Using compromise solutions on ETH is feasible in simple scenarios, but implementing on Polkadot allows for the removal of unrelated components, making the implementation of specific products more straightforward (for example, the information tracking design for multi-asset pools). Moreover, if the Polkadot parachain chooses to be EVM-compatible, the prosperity of ETH’s DeFi and NFT ecosystem will not only not be obstructed but will also be enhanced by new tools like Substrate, meaning that the Substrate tools will reshape DOT Parachain into the form most concerning to users.
Similarly, for the xDeFi protocol stack’s xHalfLife, if gas prices continue to rise in the next DeFi boom, it will certainly have a significant negative effect on the DeFi experience. These issues cannot be eradicated by small tricks like vanity addresses or gas tokens; they must be addressed by simplifying the core functionality on Substrate. For example, if a blade of a Swiss army knife wears out particularly quickly, the correct approach is not to sharpen that blade but to remove it and create a lighter product.
2.2 Missing Piece: Broader Cross-Chain Compatibility
A long-time part-time developer involved in the Cosmos IBC bounty project believes that paradigm shifts may occur gradually rather than instantaneously. The most pragmatic work at the moment is to bridge the Polkadot ecosystem and ETH1.0, as well as the Cosmos ecosystem and ETH1.0, indirectly confirming that ETH1.0 is a chain with important DeFi protocols and interoperability between protocols.
For DeFi applications already on ETH, the appeal of rollups far exceeds that of cross-chain. The main motivation for achieving cross-chain is that various public chains want to connect to ETH to attract DeFi projects. In other words, at this stage, to increase asset liquidity, other public chains prioritize EVM compatibility and developer experience, as well as compatibility for returning to ETH. The existence of Binance Smart Chain is a very clear product that emerged after the creation of the Binance BEP chain.
This developer also stated that for the Polkadot ecosystem, there is still a need for improvements in cross-chain protocols, and the methods for integrating parachains need further clarification. The Snowfork Ethereum cross-chain bridge must work properly, and it may also depend on the Grandpa consensus’s MMR and BLS implementation on Ethereum for truly usable cross-chain functionality. For the Cosmos IBC protocol, it mainly relies on the Peggy project, which has undergone redesign in recent months, with expectations to start testing early next year.
In summary, the evidence above shows that cross-chain is not something that can happen in the last few months; most existing DeFi projects are waiting to be
