What is Layer 2?
Layer 2 is a form technology that allows Ethereum to scale significantly, without relying on upgrading the underlying Ethereum protocol itself. The technology allows you to exchange, transfer and invest without paying Ethereum network (gas) fees and without sacrificing the security guarantees of the underlying blockchain itself. Safe, secure, fast, cheap.
Why Does Ethereum Even Need Layer 2?
Ethereum itself has an ambitious protocol scaling plan that will take it from the current limit of 11 transactions per second (tps) to hundreds of thousands of tps in a series of upgrades known as Ethereum 2.0. However, the part of the upgrade which will increase throughput significantly to 100,000 transactions per second is still several years away (sharding for ‘execution’) and therefore shorter term upgrades have been prioritised in order to support the greater adoption of rollup technology. This change in focus is known as the move to a more ‘rollup-centric’ strategy.
Layer 2 scaling technology comes in two forms, zk-rollups and Optimistic Rollups. zk-rollups use zero knowledge cryptography (SNARKS and STARKS) to abstract transactions away from the underlying blockchain.
In the case of zk-rollups, transactions are executed off-chain and then submitted to a merkle tree. A proof is generated periodically and submitted to a smart contract for validation. As the smart contract checks the proof, zk-rollups are known as ‘validity proof’ systems, as they minimise trust by removing the need for a third party network of validators.
The second type of rollup technology is known as optimistic rollups. Similar to zk-rollups, optimistic rollups also abstract transactions away from the underlying Ethereum blockchain, but instead they rely on a network of verifiers to check each transaction for validity. In the case of zk-rollup and Optimistic rollup technologies, if the operator is proven to be ‘cheating’ (either by the smart contract or the verifiers) then traders can move their assets back to the Etheruem main chain in the last valid state – ie the state that was valid prior to any cheating.
It is worth noting that the design space for scaling tech is nuanced. Within both zk-rollup and optimistic rollup designs, data can be held off-chain, on-chain or both, leading to varying degrees of trade-off between privacy and security
It is worth noting that several types of technology purport to be Layer 2 solutions, but are in fact just separate blockchains, or side-chains. Neither of these two approaches give the strong security guarantees of the Ethereum blockchain.
DeversiFi has launched a scalable exchange using the StarkWare zk-rollup / Validium technology.
What are the benefits of Layer Two trading?
1) Zero Gas Fees
You pay zero network/gas fees for each trade that you make. Saving $50 per transaction on gas fees every time you swap can add up to significant gains if you an active investor. Paying less gas fees means greater profits in the long run.
You still pay gas fees to enter and exit the Layer 2, but these gas fees are similar to a regular smart contract interaction.
Once you have your funds within the smart contracts of an exchange such as DeversiFi, then you pay no gas fees to trade from then onwards.
2) High Speed
You can trade at high speed with an experience that is similar to that of a large centralised exchange such as Bitfinex or Binance. As well as being able to take advantage of more profit opportunities, there is also no danger of failed txs or front running – something that plagues on-chain decentralised venues.
Privacy is not a feature of all zk-rollup venues, but is a feature of some. For example, the DeversiFi decentralised exchange holds data off-chain, meaning that no one can see your trading activity or transfers, meaning that you can operate without people sealing your alpha.
4) Instant & Cheap Transfers
Some DEXs allow private transfers between accounts. You can transfer your tokens between accounts for a few dollars instead of hundreds of dollars on-chain.
How do I trade using DeversiFi?
DeversiFi is an exchange built using the StarkWare zk-rollup & Validium technology. Traders can benefit from gas-free trading, privacy, deep aggregated liquidity and super fast & free transfers.
Swapping tokens on DeversiFi is quick and easy. Once you have deposited funds, you can transact using the advanced order book view, or switch to the simple swap view where you can easily, quickly and cheaply swap your tokens.
Remember, depositing your funds to smart contracts is not the same as depositing to a centralised exchange like Binance. As DeversiFi uses Vaildium technology, your funds are always controlled by you and can never be accessed by anyone else. This means your tokens are as secure as holding in them within a wallet on-chain. Essentially, DeversiFi gives you all the benefits of on-chain trading, but with the additional advantages of lower fees, higher speeds, privacy and deeper liquidity (better prices)
How to Layer 2 Trade or Swap – A Walkthrough
Navigate to app.deversifi.com and connect your Metamask or Ledger wallet
Click on ‘make a deposit and follow the initial on-boarding two step process.
1) Enable your account. This is a one time transaction that allows you to interact with the DeversiFi smart contracts
2) Deposit tokens. Each deposit is the same as a normal smart contract interaction, but once your tokens have been deposited then you pay no fees to trade.
Swap or trade. You can use the swap tab at the top of the screen to quickly and easily swap between two tokens, or use the advanced order books trading screen.
Congratulations on levelling up!
DeversiFi makes DeFi easy. Swap, Invest and Send without paying Ethereum network fees.