DeFi Weekly #11 — Optimistic rollups are here

Mohak Agarwal -

Scalability has been one of the biggest concerns with the Ethereum DeFi ecosystem as the popularity of dApps increases. Ethereum network values decentralization and security and hence has low efficiency. For instance, during the crash earlier this month, the network was congested, and the gas fees were as high as 1000$.

While there is no perfect solution to scalability available in the market, Layer 2 platforms provide a sigh of relief in reducing the gas fees and making the network faster while ensuring security. The rise of Polygon is a testament that showcases high user demand for L2 solutions. L2 is an umbrella term and encompasses several scaling types like plasma, state channels, side chains, and rollups, each having its benefits and drawbacks.

According to Vilatik, rollups should be the scaling solution of choice for Ethereum in the short-mid term, with zk-Rollups being the long-term option. Two of the highly anticipated rollups solutions, Optimism, and Arbitrum have garnered enormous interest from the developer community and existing dapps. Optimistic rollups support EVM and can scale smart contracts directly at a bytecode level. The platforms do not have a native token and use ETH for gas fees.

The delay in Optimism mainnet launch has given an advantage to Arbitrum; over 150 projects have requested launch-day access, and the team is launching with support to Alchemy. Arbitrum will relieve the Ethereum network as the volume will leave the main chain making it less congested and decreasing gas fees.

DeFi Stats

Source = DeFipulse.com, TheBlockCrypto.com, Defistation.com

Top DeFi updates

Gitcoin introduces $GTC and Gitcoin DAO.

Since the inception in 2017, Gitcoin has supported developers building disruptive applications through grants. Over the years, gitcoin grants have supported open-source projects and amassed over $16M in funding and $3.54M in bounties. To accelerate the growth and make the selection of projects more decentralized, Gitcoin has launched its governance token GTC.

Gitcoin DAO, on the other hand, will oversee the GTC treasury and offer frameworks for fund distribution and community participation.

BSC becomes home to a string of Flash Loan attacks.

Since May 2021, DeFi protocols on BSC have lost over $250M in “Flash Loan” exploits. What started with PancakeBunny, has not become a regular practice for hackers and has rekt AutoShark, Burger Swap, Merlin Labs, and Belt finance within a few weeks.

While several members have raised questions to remove the functionality, the reality is flash loans serve a valid purpose, and it is the responsibility of developers to build their platform to defend against them. Meanwhile, BSC has requested all dApps to take the necessary action by working with audit firms, actively monitoring anomalies, and setting up contingencies.

RenVM integrates with Fantom.

The direct bridge between Fantom and RenVM will circumvent Ethereum and allow users to mint and burn assets directly on Fantom with low gas fees. Developers can also leverage the functionality and build cross-chain dApps using the RenJs SDK.

DeFi Dose: Governance

Decentralization is at the core of blockchain, and a majority of protocols embody this practice not only at the technology level but also at the operational level. Decentralized governance solves the “principal-agent” problem, which is a regular instance in centralized/hierarchical organizations where the “agent” is in charge of making decisions for the “principal” and, in several cases, can harm the principal.

For blockchain protocols to truly unlock the fundamental beliefs of inclusion and openness, governance becomes a critical component. Network participants (token holders in most cases) govern protocols and vote on the protocol’s future by accepting/rejecting improvement proposals submitted by the community.

Transitioning to governance is complicated and uncertain for early blockchain start-ups, typically dependent on network participation and incentivization. There is still a lot of exploration for the perfect governance model, and every protocol adopts what satisfies them the best.

Maker DAO, Compound, Uniswap, and Aave are some of the most widely celebrated projects for their governance models.

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