Layer two decentralized exchanges Loopring and DeversiFi together form a committee dedicated to promoting the use of Layer 2 solutions called “L2 Squared” or simply L².
The alliance announced on Monday aims to make it easier for users to transition to these more powerful on-chain exchanges. “Currently, Loopring and DeversiFi are the first Ethereum exchanges to use Layer 2 solutions with zkRollup and Validium from StarkEx.” explained Will Harborne, Founder of DeversiFi. “The much-needed migration to Layer-2 is not easy, however, and the network effects of Layer-1 composability are very strong, which can slow this ongoing transition.”
Both Loopring and DeversiFi require a separate deposit transaction to get into their respective ecosystems. While funds are never in the custody of exchanges, this requirement still hinders usability and composability with other protocols.
The alliance will have several areas of responsibility aimed at promoting the adoption of the second tier. From a business perspective, you run educational initiatives to explain how the technology works and what advantages it offers over normal use of Ethereum as well as more wallet integrations.
On a technical level L2 Squared will work on developing compositional standards between Layer 1 and Layer 2 as well as between different Layer 2 systems. So far, most Layer 2 solutions are sandboxes that cannot be connected without first going through Ethereum.
The alliance comes about because the Ethereum roadmap formally contains a rollup-centric vision. Data sharding is expected to be available in 2021 after a relatively short development phase. Combined with rollups, the network can process thousands of transactions per second earlier than expected in the past.
Achieving seamless composability and interoperability is the key to rollup-centered vision. While many DeFi DApps have committed to using one or the other solution as soon as it becomes available, some see potential fragmentation as a major barrier to adoption.