There is a DeFi technology race taking place with the most talented development teams in technology and finance, all pushing to solve the holy grail solution regarding cryptocurrency and decentralized finance; scalability.
What is Scalability?
Scalability is how much interaction a network can handle at one time. With Ethereum currently, it averages at around 9 transactions per second, with the aims of reaching much higher with the much anticipated POS (Proof Of Stake) upgrade within three months, if all goes well.
If Ethereum solves its scaling issues, it would open up the ecosystem to be mass-adoption-ready but until then, layer 2 solutions are a necessity to even interact on the Ethereum network, without paying ridiculous fees and waiting a long time for confirmations, as we covered in our article about how DeFi has Impacted Ethereum.
What is a layer 2 solution?
Layer 2 refers to a secondary protocol that is built on top of an existing blockchain, mainly aimed at increasing transaction speed, scaling difficulties and potentially privacy concerns.
Regarding Bitcoin, a good example of this is the Lightning Network, which allows transactions to be sent quicker than usual, as we know Bitcoin can be extremely slow in relation to other cryptocurrencies.
Ethereum layer 2 solutions are the main focus for many development projects as Ethereum currently captures most of the market share of DeFi, which is why scaling and cost are very important currently regarding our interactions with DeFi projects. When interoperability is further along its advancement, the layer 1 blockchain in question may not be so important.
DeFi is about taking advantage of high yields and arbitrage opportunities, so conducting business on a slow, expensive blockchain can negate any potential benefits.
Reddit has set a challenge for the professional scaling teams to find a solution for Reddit’s own community point system that they are currently trialling.
The goal is to find a solution that supports hundreds of thousands of community point users currently, with the near future trajectory of being able to scale the whole of Reddit, which has 430 million monthly users.
For this to be practical, the fees have to be extremely cheap per transaction, near instant settlement times and be able to handle many transactions at any one time.
A few other criteria that Reddit have attached include decentralization, interoperability, ease of use, security, the possibility of point burning and a solution that is fully open source is highly recommended.
Scaling Solution Contender Summaries
Starkware – The tech: Utilizes a full-proof zero knowledge stack, utilizing STARK technology which generates and verifies proofs of computational integrity.
The way it works is making the verifier’s work exponentially smaller than the prover’s. This is by conducting the prover’s work off-chain and using the chain to verify it, which allows blockchains to scale without requiring trust assumptions.
With investors such as Intel, Pantera, Coinbase & Vitalik Buterin, the founder of Ethereum himself, the 30+ team initiative has a chance of meeting the prequisites required for Reddit to succeed in its scaling vision.
Dragonchain – Originally developed at The Walt Disney Company in Seattle in 2014, it became open-sourced in 2016, is not currently associated with Disney and is a hybrid public/private blockchain platform allowing integration with other blockchain protocols, legacy systems, oracles, and API’s.
It has finally achieved compliance in the USA after facing legal battles from the SEC, as seen in the documentary series. It is one of the few projects to do so.
It held a 24 hour Scaling Demo With 250 Million+ Transactions In 4 Minutes, seen below:
Matic Network – A layer-2 scaling solution that uses sidechains for off-chain computation, utilizing the plasma framework and decentralized Proof-of-Stake validators.
The goals is to offer scalable and instant blockchain transactions. One of the notable investors are Coinbase Ventures, who invested in the seed round for Matic. It was also one of the famous Binance IEOs (Initial Exchange Offerings), which saw massive attention from investors when it was first launched.
Matic has put together a Proof-of-Concept for the Reddit Scaling Bake-Off. The Matic Sidechain processed 3 million transactions over 12 hours with total gas feess of $3.52. The PoC only used a few addresses for the purpose of the demo, and the total throughput with millions of user addresses can go up to 7200 transactions per second, per sidechain, so these 3 million transactions could have theoretically been completed in 10 or 11 minutes.
Solana – A blockchain that is a layer 1 solution blockchain. It can support 50-65k transactions per second, and 400ms block times. Derivatives Exchange FTX is building their decentralized exchange on Solana blockchain, as well as KIN, the token used for the Kik app.
Everest – The Everest ecosystem consists of the payment solution, EverChain, their multi-currency wallet, EverWallet, and a native biometric identity system, called, you guessed it – EverID. The CRDT Token is pegged to the US penny, so 1 CRDT = $0.01 USD.
There are some heavy hitters on the team, with two co-founders coming from Bittorrent and the head of partnerships being the international consultant for the Gates Foundation.
xDai & Splunk – The publicly traded software company Splunk, a “data-to-everything” platform, is using Ethereum sidechain xDai chain to power payments.
The xDai token is a stablecoin pegged to Dai, which is a stablecoin, pegged to the US Dollar. It is decentralized and built on the Ethereum network.
OMG.Network – The Ethereum Proof of Stake plasma child chain, which inherits the security of Ethereum, is working on providing the solution to the fundamental co-ordination problem among payment processors, financial institutions and gateways.
It pushes towards the advancement of Plasma, an off-chain solution that can potentially increase the performance of the Ethereum network by creating a tree-like structure of smaller chains, taking the stress off the main chain and providing more transactions per second.
NEAR – Focusing on sharding as a scaling solution, NEAR is a Proof of Stake decentralized application platform which is a developer-friendly blockchain. Team members came from Google and Facebook, with a number of renowned backers in the space, providing the resources to help fulfil their mission of becoming ‘the developer platform for the open web’.
Fuel Labs – Fuel is designed to handle large volumes of transactions on Ethereum, as well as reducing the cost. It uses a mechanism called optimistic roll-ups which is a simplistic layer-2 scaling solution, leveraging the Optimistic Virtual Machine (OVM), allowing for a 100x throughput increase.
They aim to empower any person with fast, secure and cost-efficient erc-20 transfers and swaps. The average cost per transaction currently is $0.03 and an average speed of 320ms at the time of writing.
Raiden – An off-chain scaling solution, enabling near-instant, low-fee and scalable payments, compatible with any ERC-20 tokens. Their ‘Raiddit‘ solution for the Reddit Scale-off is apparently able to do 100,000 transactions in a short amount of time as the more users, the higher the throughput.
Connext – Scaling for Ethereum using state channels. With Connext, users are able to batch many Ethereum transactions into one netted transfer by using signed off-blockchain commitments rather than direct on-blockchain transactions. It is a non-custodial batching or “compression” layer on top of Ethereum which retains the security and self-sovereignty qualities of the base blockchain.
Users of projects that set up a Connext Hub can open state channels with the Hub and transact with any other user that is also connected to the Hub without paying gas or needing to wait for block confirmation time. The throughput of these transactions is only limited by the bandwidth of the Hub.
Arbitrum – a development from OffchainLabs, their Arbitrum Rollup which is currently in Beta can apparently scale any Ethereum smart contract. Its main uses would be for DeFi apps as it is trustless, increases the Dapps capacity and reduces costs. Their next Arbitrum developments include Channels & Sidechains. Their investors include Coinbase Ventures, Pantera, Compound & Blocknation.
Aztec – Built on PLONK, it is using STARK technology to provide private transactions computed in seconds, provides cost-reduction in gas and settles in minutes. They aim to help people utilize DeFi anonymously, with transactions taking place within the Aztec security shield. A few use cases are escrow, micro-transactions and money streaming.
MatterLabs – Focused on Zero-Knowledge Proofs (ZKPs) and their practical application in public blockchains, MatterLabs is creating a trustless scalability and privacy layer 2 protocol for Ethererum. They have received a grant from the Ethereum Foundation and backing from various other VCs such as Placeholder and #hashed.
Unique properties of ZKP include the preservation of privacy and ensuring succinct verifiability of large computations by relying on pure math.
Abridged & Kchannels – The submission comes from a technology stack, which is:
- Abridged: Smart contract wallet and relayer architecture
- Tor.us: OAuth onboarding and key management
- Kchannels: horizontally scalable state channel solution
The goal is to create Ethereum Dapps for the broader population. The co-founder launched Spankchain and through his experience, realised that scaling is more of an on-boarding problem, than a throughput problem. This is why the focus is on instant onboarding which happens in the background, providing more ease of use.
SKALE – An Ethereum-compatible network with a leaderless consensus designed to run on an uncapped number of independent nodes, each of which will be providing resources to multiple high performance decentralized elastic blockchains.
It is an open source elastic blockchain network designed specifically for scaling Ethereum by increasing transaction speeds, lowering transaction costs, and creating seamless workflows for end users and developers building applications on Ethereum.
Syscoin – Using unique Z-DAG technology means the network can handle a transaction throughput of 60158 Syscoin Platform Token transactions per second (TPS) and zero confirmation transactions, while remaining decentralised and secure. It intends to interoperate with other blockchains using its Syscoin Bridge technology.
The unique merge-mining feature with Bitcoin provides it with a robust and secure infrastructure. The fees are apparently low enough to be able to use for day-to-day microtransactions.
Meter – A Layer 1, permissionless, low-volatility ‘global’ currency without collateral, oracle, or regulatory risk. It is fully decentralized and can process thousands of transactions per second, which are are confirmed near-instantly.
There is a governance token MTRG and the stablecoin MTR, worth 10Kwh of electricity (~$1 USD). It aims to provide a stable purchasing power that can’t be censored or manipulated by third parties.
The team have experience from working in companies such as Google, Cisco, Huawei, and JD Capital, with a focus on deep tech, software architecture, product management, and product growth.
Dapp Solutions – An EOS Block Producer and full cycle consulting ecosystem for EOSIO and blockchain technology. They offer certain developer tools such as vRAM (RAM for your EOSIO Application), LiquidOracles (Secure data streams), Liquid Scheduler (automating CRON processes) & LiquidAccounts (onboarding without costs and friction).
Hubble Project – A scalability solution using optimistic rollups that has currently processed 40k+ transactions.
Minter – A blockchain network that lets individuals or companies create and manage their own tokens, with the option to exchange them at a fair price with instant liquidity.
The blockchain itself is developed with Tendermint consensus engine inside, the technology behind Cosmos Network that makes it automatically compatible with many ongoing and upcoming projects in the ecosystem.
Designed with mass adoption requirements in mind, the Minter network is able to deliver over 1,000 transactions a second right from the start and plans to reach a 5,000–10,000 TX/sec goal within a year.
Celer – A leading layer-2 scaling platform that enables fast, easy and secure off-chain transactions for not only payment transactions, but also generalized off-chain smart contract. It enables everyone to quickly build, operate, and use highly scalable decentralized applications through innovations in off-chain scaling techniques and incentive-aligned cryptoeconomics.
These are the DeFi projects that are contending for first place in the Reddit Scale-off. Some are layer 2 Ethereum projects, some are built on top of other blockchains, and the rest are their own blockchains altogether. We do not recommend any individual crypto picks, merely providing you with the information to make your own informed decisions.
Who do you think will win? Let us know on Twitter!