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🕺The State of Layer 2s as dYdX Makes its Move
Hello Defiers! Here’s what we’re covering today:
dYdX is latest major DeFi project to go to Layer 2
The Defiant’s State of Layer 2
Non-ETH DeFi tokens outperform
Ethereum bots are bringing in more MEV profits than ever
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TLDR Trading Ethereum-based assets is about to get cheaper. Decentralized exchange dYdX is moving its perpetual derivatives trading off the Ethereum main chain to a Layer 2 scaling solution.
SO WHAT The move should be seen as an encouraging sign that scaling solutions for Ethereum are mature enough to be relied on by some of the space’s largest projects. Ethereum has struggled to handle the surging demand for DeFi applications built on the network, which is making transaction costs prohibitively expensive for some traders. Layer 2 solutions enable faster and cheaper transactions, which are ultimately confirmed to the Ethereum main chain.
“Traders can now trade with zero gas costs, and in turn, lower trading fees and reduced minimum trade sizes,” according to the post.
ZERO FEES Layer 2 will enable dYdX users to trade without having to pay gas fees --the protocol’s maker fees range from 0% to 0.05% and taker fees range from 0.15% to 0.05% depending on volume. It will also allow the DEX to reduce trade sizes to 0.001BTC, 0.01ETH and 1 LINK and enable cross-margin trading, meaning users will be able to deposit almost any Ethereum token as margin, and it will be converted to USDC to be traded across all markets.
WHY ZK-ROLLUP dYdX reviewed different Layer 2 solutions and also other blockchains as it weighed how to scale its DEX from Ethereum’s 15 transactions per second, and concluded that StarkWare would be able to provide the best user experience at the shortest amount of time.
TLDR This piece dives into the current state of Ethereum Layer 2 scaling solutions focusing on state channels, plasma and rollups. We break down how each works, their own set of tradeoffs, the teams developing them, and the projects migrating to each.
WHY IT MATTERS With transactions in the several hundreds of dollars and the chain’s blocks perpetually filled, as competitors inch in, it’s not an overstatement to say the future of Ethereum depends on Layer 2s.
You don’t want to miss this one.
TLDR Non-Ethereum DeFi tokens are outperforming their Ethereum peers. Of the top 10 best-performing DeFi tokens with over $100M market capitalizations in the past seven days, six are non-Ethereum or cross-chain based and four exist solely on the Ethereum blockchain.
Looking at the 10 biggest DeFi losers of the last seven days with $100M market capitalizations, eight are deployed exclusively on Ethereum.
WHY IS THAT Tokens of non-Ethereum based DeFi projects are weathering the recent market slump better than Ethereum-based peers as concerns mount that the second-biggest blockchain by market cap is becoming too expensive to use. Ethereum alternatives are rallying as some traders bet other Layer 1s will be able to attract DeFi users who are being priced out.
PERSPECTIVE To be sure, the pullback for DeFi-based Ethereum comes after a massive rally, unrivaled by any other chain. All the top 10 performing DeFi tokens in the past 12 months are Ethereum-based, with Aave leading the way, according to data compiled by Messari, while assets held on Ethereum protocols soared from about $1B to over $50B, according to DeBank.
TLDR Ethereum bots’ profits are getting juicier: Nearly half of the total revenue they’ve made since January 2020 comes from value they’ve extracted in the last 30 days.
MEV-Explore’s newly launched MEV Dashboard tracks and quantifies MEV extracted on-chain, dating back to the first block of January 2020. The tracker has documented over 1.3M MEV transactions totaling $322M worth of extracted MEV to-date, with nearly $112M in just the last 30 days. In other words, MEV is trending upwards. Moreover, MEV-Explore notes that these metrics are the lower bound of MEV transactions.
MEV “Maximum Extractable Value” (and formerly, “Miner Extractable Value”). It is a measure of the total amount of value that a miner, validator, sequencer, or other privileged protocol actor can make through arbitrarily including, excluding, or reordering transactions from the blocks they produce.
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🧑💻 ✍️ Stories in this newsletter were written by Owen Fernau and Dan Kahan, and edited by Camila Russo. Videos were produced by Robin Schmidt and Alp Gasimov. Podcast was led by Camila and edited by Alp.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access, while free signups get only part of the content. Click here to pay with DAI (for $100/yr) or sub with fiat by clicking on the button above ($10/mo, $100/yr).