Ethereum layer-2 wars heat up
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It’s getting cheaper to lend and borrow your idle cryptocurrencies.
Compound Finance has announced that it’s deploying its latest iteration on the popular scaling solution Arbitrum.
One of the original decentralized finance (DeFi) products, Compound lets users lend and borrow various cryptocurrencies. The platform was also one of the first to experiment with so-called yield farming, distributing its native COMP token to the platform’s users back in 2020. The token currently trades at $34.7 at press time.
Arbitrum is the industry’s largest layer-2 scaling solution by total value locked (TVL), per data from L2 Beat. TVL refers to how much money is sloshing around in a given project or chain.
Compared to other popular Ethereum scalers, like Optimism or zkSync, Arbitrum takes the cake at a whopping $5.8 billion.
Compound’s deployment on Arbitrum is limited to just a few cryptocurrencies, such as Ethereum (ETH), Arbitrum, Wrapped Bitcoin (WBTC), and GMX (the token powering the eponymously-named decentralized exchange).
That’s because the project’s latest iteration, called V3, is optimized to manage risk by reducing the amount of long-tail crypto assets that can be lent and borrowed.
This year has turned into something of a layer-2 season with the launch of various governance tokens, and the first instance of zero knowledge-powered rollup solutions entering the scene.
Compared to “optimistic” rollup solutions, like those on offer from Arbitrum and Optimism, zk-rollups leverage a much more complex bit of cryptography. Members of this market niche include Starknet, Polygon’s zkEVM, and zkSync. The collective TVL for just those three projects is $320 million.
Both solutions leverage rollups, which batch transactions off of the Ethereum mainnet (hence the term layer-2) and then convert those batched transactions into a small piece of data.
This smaller piece of data, called a proof, is what Ethereum ultimately validates. In this way, the mainnet remains relatively uncongested, keeping gas prices on the network low.