Things are hopefully about to speed up and get cheaper in Ethereum land, as Synthetix, the synthetic asset issuance protocol, deployed its staking code from Ethereum to Optimism, a Layer 2 scaling solution on Jan. 15.
Now, users can migrate their Synthetix Network Tokens (SNX), used to mint the protocol’s synthetic assets, to Optimistic Ethereum’s Layer 2, where they can continue staking without the high gas costs of Layer 1.
An Asymmetric Bet
As the first major DeFi protocol to implement a Layer 2 scaling solution, the Synthetix team is taking a risk. Major protocols could converge on different solutions, leaving Synthetix with wasted technical effort along with isolation from integration with other platforms. As composability (Defi protocols’ ability to permissionlessly integrate with one another) is one of open finance’s defining competitive advantages, this would be a major blow to Synthetix.
But the Synthetix team believes the upside of their decision to be much higher. The team’s post Why Optimism calls the choice “an asymmetric bet.” This is because if DeFi converges on Optimism as a solution, Sythetix will be far ahead, benefiting from the quick and cheap transaction fees which layer 2 enables while also being able to seamlessly integrate with protocols.
The launch represents the much anticipated first run of the Optimistic Ethereum mainnet. As Ethereum suffers from high gas fees and congestion, which limits adoption, Layer 2 solutions constitute an essential piece of the scaling puzzle as Ethereum developers try to push the network from 15 transactions per second (TPS) into the thousands.
Optimism employs a Layer 2 scaling strategy called optimistic rollups, a solution which aims to increase transaction speed and throughput, and reduce costs by porting smart contracts to the Optimistic Virtual Machine (OVM), which alleviates congestion on Ethereum’s main chain.
Rollups Have Momentum
Vitalik Buterin, Ethereum’s co-founder has stated that scalability has been a known issue since 2014. Since then much research has been done (evidenced by the many layer 2 technologies today), and momentum appears to be with rollups as the optimal solution.
Vitalik Buterin supports the solution. He said in a post last year that “the Ethereum ecosystem is likely to be all-in on rollups (plus some plasma and channels) as a scaling strategy for the near and mid-term future.”
More recently the founder has hinted that rollups may integrate with ETH 2.0’s shards, pushing Ethereum’s TPS into the ~100K range.
We’ll soon see whether Synthetix made the right choice in rolling the dice with Optimistic rollups, as other Ethereum dapps pick their Layer 2 flavor.