The advantage of Layer 2 is that retail investors can share the handling fee in groups, but the disadvantage is that there will be delays.
Original title: “Using Pinduoduo’s Ideas for DeFi Expansion”
Interviewee: Dong Mo, founder of Celer Network
Three or four years ago, the industry’s choice of expansion path was that sharding was the mainstream, and stratification was the minority. As the sharding plan has been delayed and delayed, it seems that if there is no expansion, there will be major problems, and the layering has become the mainstream again, and various teams have appeared on the scene, forming cliques. Originally, the Layer 1 war hadn’t ended yet, but the Layer 2 war was about to begin again.
I was very impressed by two teams that advocated stratification back then, one is Nervos and the other is Celer. Recently, Celer came up with a brand-new layer 2 solution. I chatted with Dong Mo, the founder of Celer, on zoom remotely. The people who specialize in Layer 2 are different, and I have answered many questions that I have never understood. For example, what exactly is Layer 2?
I took out a relatively easy-to-understand section from the recording and wrote it down to introduce the basic principles of Layer 2 finance. What’s interesting is that it is similar to Pinduoduo or community grouping. Friends who are still interested can also listen to the complete recording for about an hour, which is very suitable for friends who are confused by the basic principles of Layer 2 (such as me).
Dong Mo: Expansion must come at a price. For example, we will cause liquidity fragmentation, as well as the threshold for users to get started. How do I use so many Layer 2?
At this point, I want to start talking about Layer 2 finance~ If there are different defis on each Layer 2 in the future, how to aggregate them? What if I just want to use the protocol on layer one and cannot afford the gas fee? These are what we want to solve.
The Rollup we talked about just now is the basic version. The transaction and stateroot are placed in Layer 1, but all state and compute are in Layer 2. So what is celer’s advanced version of Rollup? We call it “please answer” Layer 2, which means that layer 2 can make function calls with layer.
This argument is too fancy, let me give a special example of a turtle. Wang Ergou and I both have 100 yuan, we both want to put money on the compound, and then when Wang Ergou and I each put money into the compound, we need to pay a handling fee of 200 yuan each.
So Puppy Wang and I are not very happy, what should I do? We deposit all our money on Rollup, Layer 2 finance. The operation of depositing money is very cheap, similar to ordinary transfers. After the money reaches Rollup, Wang Ergou and I can perform the same operations together.
This Rollup not only aggregates state (for example, both of our current states want to put money on the compound), but also aggregate operations or instructions. Wang Ergou and I originally needed two operations on Layer 1 in order to deposit money on the compound. Now Layer 2 finance can aggregate these two operations and do it once. If there are 10,000 people like both of us who want to save money in the compound, Layer 2 finance can also aggregate these 10,000 operations. Once done, the fee each person needs to pay is reduced to one ten thousandth of the previous one. Of course, the premise is that these 10,000 people first deposit their money in the Rollup of Layer 2 finance.
The most direct benefit of this is that retail investors can hold groups and share the handling fee. The disadvantage is that there will be a delay. Wang Ergou wants to save money at 10 in the morning. I am at 2 in the afternoon. Others may be at other times. If you want to gather enough people, you need to wait for a while, depending on how many users there are on Layer 2 finance. In theory, if the number of users is large, a better balance effect can be achieved, and a short waiting time can be exchanged for a substantial reduction in handling fees.
Orange Book: Sounds a bit like YFI’s machine gun pool?
Dong Mo: It’s a bit similar, but it’s very different in nature. The operations that YFI can help you complete are very limited, it is just a machine gun pool. And we are a real aggregator, you can really move flexibly between protocols and strategies, and at the same time pay very low fees. Because we help you spread the handling fee evenly among users who have the same wishes and needs as you, there is no way to do this with YFI.
Orange Book: Does that mean that there must be many people who have the same wishes as me to help me share the handling fee?
Dong Mo: You are right. In the worst case, you pay the same handling fee as before. As long as there is one person, your handling fee becomes 1/2, and as long as there are two people, it becomes 1/3. This thing is for the user to make a profit without losing money.
Orange Book: So Layer 2 finance is Pinduoduo in the DeFi world?
Dong Mo: Yes, this analogy is great. It’s also a bit like a bus, it’s shared by many people, and it leaves at the point. Online ride-hailing is available on demand, but it is expensive, just like the operation on Layer 1, you can transfer money at any time. The bus is not the same. You have to wait at the platform for a while, and when you arrive, you can sit anywhere for a dollar.
Layer 2 finance is specifically optimized for the DeFi vertical market. Unlike other versatile Layer 2, we don’t need to consider scenarios such as NFT. DeFi transactions are relatively simple, just put money in that protocol, and it doesn’t exist. The issue of EVM compatibility, so our transaction cost will be much lower than that of the universal Layer 2.
The podcast, which has been delayed for a long time, finally released the first issue, which is a bit rough. Friends who often listen to podcasts, please forgive me. Currently only Himalaya is listed, and it will soon support other mainstream platforms. You can find it by searching the “Orange Book”.
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