First came Layer1, which represented the main blockchain architecture, with names such as Bitcoin and Ethereum, which see transactions settled directly on their own networks. Then came Layer 2, which was created to solve the problems of scalability as well as sluggish execution speeds, poor energy efficiency and exorbitant gas fees on the Layer 1 chains.
Layer2 is an overlaying network, with chains that sit on top of Layer 1 and can interact with them through bridges. So for instance with Bitcoin, Lightning Network is the Layer 2 Chain. That means transactions can be made through these second Layer chains and the instrument can be moved back and forth from the Layer1 chain when needed while using the advantageous conditions of the Layer2 chain. However, the Lightning Network as one example comes with its own problems. It has extremely high-cost implications associated with it, plus it is quite open to fraud and cyberattacks and finally, Bitcoin’s high volatility and wild price swings could stop Lightning Network from becoming a popular choice for many.
Building bridges across the entire blockchain ecosystem
An example of Layer2 which is addressing the pain points of Layer1 networks is WanChain. WanChain is a cross-chain Layer2 protocol that connects different blockchain ledgers, both Layer1 and Layer2, for instance directly connecting Bitcoin and Ethereum, in a way that allows for the exchange of value among them freely and fast through decentralized superbridges or connectors.
WanChain is marching towards an environment where all chains are interoperable with one another, thus removing the hurdles of safety, speed and efficiency, and the current pain points we are seeing with Ethereum today, namely network congestion and high transaction costs. This enables developers in their missions to create decentralised cross-chain applications for decentralized finance.
According to WanChain, “Blockchain technology is rapidly changing the world as we know it, but public and private blockchain networks are still operating in isolation. Open Finance must be connected.”
They believe that Open Finance enables “financial freedom, empowerment, and connectedness that we’ve never experienced in history. We seek to accelerate this change through global connectivity.”
The DeFi Ecosystem on Layer2
The DeFi ecosystem is a thing of beauty with some truly excellent protocols available, to bring users like you decentralized finance apps, for making the most of the financial markets, in a secure and private environment, with often excellent returns on your holdings. There are some ingenious decentralized finance apps out there. The only prohibition is the cost for transacting. So for instance, if an app offers you a 10% APY, that sounds excellent when compared to the traditional financial markets, but once you factor in the costs of making a transaction, using the Ethereum network, for instance, you can find that your reward is suddenly not so rewarding.
Step up Layer2.finance
That’s where Layer2.finance comes in. It effectively aggregates all of the fund allocation demands together into one group and then sends one single Layer1 transaction to allot the funds directly into a shared funding pool. The benefits? Firstly, one single transaction fee shared among all the participants for all of their transactions, and secondly much more liquidity in the market.
Layer2.finance has taken the existing frameworks of both Layer1 and Layer2 and simply added on to them, to create a service that is even more exceptional, at a fraction of the cost for the user. This solution requires absolutely no migration with the other Layers, so developers can carry on developing as they were, and users can use a single interface as a gateway to navigate between all of the available apps, to seek out the best yields for their holdings and use the very creme de la creme of DeFi apps.
Celer Network Introduces Layer2.finance
Celer Network have created Layer2.finance in order to bring mass adoption to the current DeFi landscape via Ethereum, Polkadot and other leading blockchains using their layer-2 scaling technology. Layer2.finance therefore works as a minimal cost and trust-less doorway for users to explore the existing DeFi ecosystem, with no worries about high transaction fees. Celer claims quite accurately that users will pay 100x lower transaction fees when utilizing existing DeFi apps through their protocol. Plus, they make it very simple for even the newest crypto users to benefit from some of the very best that the DeFi ecosystem has to offer.