Innovations in L1 and L2 Blockchains: A New Era in DeFi
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Chapter 1: The Evolution of DeFi and NFTs
The landscape of DeFi and NFTs is rapidly transforming, a trend that shows no signs of slowing down. Throughout the bear market, marked by the hashtag #buildersgonnabuild, there have been noteworthy advancements in the crypto space worth examining since my last two articles on "airdrop hunts" over the past year.
Given the current macroeconomic challenges—such as inflation, geopolitical tensions, and rising interest rates—the speculative excitement that once dominated the market has diminished. The initial motivation behind these articles stemmed from the thrill of a profitable ENS drop, as well as the hope to replicate that success in the future. However, this perspective has evolved into an appreciation for the remarkable creativity and innovation aimed at establishing a more inclusive and accessible infrastructure for both the art and finance sectors.
Reflecting on the first two parts of my previous articles, it’s evident that incentivizing usage and rewarding early adopters has proven effective. Personally, I’ve nearly completed the Optimism Quests, which were prompted by their airdrop and led me to a fantastic Bankless podcast about OP. I'm eager to share some insights below, and I'm also holding onto valuable ENS addresses, having even created an ENS website!
Interestingly, the current trend with ENS has not been another airdrop but rather a surge in domain name speculation, reminiscent of the Web2 era (such as cars.com selling for $872 million in 2015) or high-value phone numbers (like 6666666, which sold for $2.5 million in 2008). The value of short and meaningful domains has skyrocketed, with the floor price for three-digit domains hovering around 30 ETH. Notably, Paradigm.eth fetched $2 million last year.
I currently own addresses like nationalnews.eth and dodl.eth, with plans to develop sites that offer more utility than just serving as wallet identifiers. Congratulations to those who seized these opportunities when mentioned back in December 2021.
The resurgence of the Linagee Name Register (LNR)—the first smart contract on Ethereum from 2015—has ignited similar excitement. OpenSea's trading volume has approached 1,000 ETH, thanks to rapid advancements from NFT researchers like Mason Keresty and Leonidas.og. The primary distinction between ENS and LNR is that LNR aims for complete decentralization and offers domains with lifelong subscriptions (no expiration).
Explore more about LNR:
Section 1.1: Understanding zk-Rollups
Ethereum is categorized as a "monolithic" blockchain, where consensus, execution, and data availability all occur on the Ethereum network. This model is unsustainable, as all nodes must perform these functions. To scale effectively, Ethereum needs to transition to a "modular" architecture, utilizing the blockchain primarily for consensus while delegating execution and data availability to off-chain solutions.
The solution lies in zk-rollups, which bundle thousands of transactions into a single, verifiable zk-proof that is stored on the blockchain. This technique facilitates cheaper and faster transactions on Ethereum. The leading contenders in this space are Zksync and StarkNet.
The eagerly anticipated Layer 2 scaling solution, Zksync, is set to launch its mainnet on October 28th, with a full rollout expected by year-end. I have explored the testnet and encountered some challenges in minting an NFT, but I am prepared to dive deeper with my Argent wallet.
Here are some Zksync applications to explore:
- Mute.io: An automated market maker (AMM) exchange, farming platform, and bond platform.
- ZigZag: A decentralized exchange (DEX).
- Taker Protocol: Users can liquidate and rent various crypto assets.
Section 1.2: StarkNet and its Innovations
StarkNet is another significant zk-rollup solution designed for scaling the Ethereum network. MakerDAO has established a StarkNet bridge, and Uniswap V3's Solidity code has been adapted for StarkNet through Nethermind's Warp project, with plans to onboard more Ethereum-based projects in the future.
This ecosystem has followed Optimism's lead by launching its own quest system called Odysseys to facilitate user learning. These quests guide users through setting up an Argent Wallet, minting their first NFT, and acquiring test ETH, among other activities. Note, however, that this process can be slow, with 30-second waits for transaction confirmations. The good news is that it is all free. I minted several identities, including cashapp.stark, papajams.stark, noun.stark, and songcamp.stark.
Chapter 2: Exploring Optimistic Rollups
The leading optimistic rollup solutions so far are Optimism and Arbitrum. Due to Ethereum's high transaction costs and limited throughput (approximately 15 transactions per second), scalability has been severely constrained. Optimism and Arbitrum allow transactions of Ether or ERC-20 tokens at a throughput of around 2000–4000 TPS, significantly reducing the cost compared to Ethereum's baseline gas fees.
Optimism employs single-round fraud proofs executed on layer-1, while Arbitrum uses more advanced multi-round fraud proofs executed off-chain, making it more efficient and cost-effective. Both Optimism and Arbitrum are EVM-compatible, but Optimism operates on Ethereum's EVM, whereas Arbitrum utilizes its proprietary Arbitrum Virtual Machine (AVM).
One of the engaging aspects of the Optimism ecosystem is a series of 18 NFTs that can be collected while exploring various DApps. These quests are both entertaining and educational but can also be time-consuming. Rumors suggest that these NFTs may serve as multipliers for the remaining 14% of $OP set to be airdropped.
My personal favorite is Quix, the NFT marketplace where you can collect various creative works, including articles on Mirror. Recently, I collected a free piece by Catalog's Alex Siber, which is still available for a minimal gas fee on Optimism.
Arbitrum has maintained the highest Total Value Locked (TVL) among all Layer 2 networks, holding nearly 50% of the market share, while Optimism holds approximately 30%, according to L2Beat.
For more hands-on experience with Arbitrum, consider exploring the Arbitrum Odyssey and the recently launched Arbitrum Nova, which was introduced in July 2022.
Some applications to try on Arbitrum include:
- GMX: Buy GLP, GMX, stake, and trade.
- Stratos: Purchase NFTs.
Tezos also presents exciting developments in both art and DeFi, with platforms like Fxhash showcasing generative art. The Plenty Network has introduced innovative DEX models powered by automated market makers (AMMs) that enable liquidity providers to earn rewards.
In conclusion, the DeFi landscape continues to evolve with numerous opportunities for growth and exploration. As we navigate this exciting space, staying informed about the latest advancements will be crucial for maximizing our potential in the crypto ecosystem.