Scaling DeFi — Layer Two

Key takeaways

Minor takeaways.

How do we get more milage?

The basic formula is as follows:

All L2 solutions currently follow this pattern. The pattern has one major downside:

All L2 solutions are walled gardens with limited functionality.

Where are the balances stored?

The on-chain approach is the most secure, but it can only lead to linear scaling. It also makes undue assumptions on the availability of calldata. (In Ethereum, storage has data-availability guarantees, but calldata is only around as a curtesy by nodes. As Ethereum grows, it will make less sense to store all historical transaction data.

On Data Availability

There is a much discussed problem common to all scaling solutions that only shows up during catastrophic times.

In order to claim your funds in a catastrophic unwinding, you need to proof the funds that you held. For this you need some evidence that links it back to the latest state root. The evidence changes with each state root, so it is critically important that you always have access to the latest evidence. This is known as the data availability problem.

One approach to solving this is called rollups. Here information required to construct a proof of funds is submitted together with the batch to Ethereum. The

It is important to note that Ethereum itself does not guarantee data-availability on calldata. The Ethereum protocol requires miners to share all transaction data in the latest blocks, but not necessarily that of historical ones. Storing the

Fortunately for the network, full nodes provide this information altruistically as a service. There are also centralized services like etherscan that offer this free of charge. This currently requires 130 GB.

While there are proposals to limit

How do we know if transactions are processed correctly?

* The academic definition of a zero-knowledge has some additional requirements that are stronger than required for succinct proofs. For scaling purposes often simplifications are made that make the proof system no longer zero-knowledge.

The problem with optimistic proofs

It's like you DIY your own Airbag in your car. You won't know you forgot something until it is too late.

IDEX example. "no fewer than 50 fraud proofs."

Can not depend on watchtowers being vigilant: See MakerDAO auction.

Security is multifaceted

The hybrid approach

Remco Bloemen
Math & Engineering