Blockchain scaling and privacy provider Starkware Industries is working towards improving the current state of Layer 1-based decentralized finance, which is now too costly to use for the average investor.
Anyone that has made a transaction on the Ethereum network this year will know how expensive it has become. Currently, it will cost almost 10% to send $100 on the Layer 1 network as gas prices have skyrocketed yet again, making DeFi a costly exercise for all but the whales.
Starkware is working on a solution, however, and it involves DeFi Pooling, a new way to split the Layer 1 costs and make rebalancing positions available on Layer 2.
DeFi is all about Capital Efficiency – it must remain on L1.
We designed DeFi Pooling so traders on L2 can participate (gas-free!) in L1 DeFi.
DeFi & liquidity will remain on L1.
They will allow the masses to take part in this brave new world.https://t.co/ywhzQYFK29
— StarkWare (@StarkWareLtd) January 24, 2021
DeFi Pooling on L2
In its explanatory blog, Starkware uses Yearn Finance as an example of a yield aggregator that does the work for smaller traders. However, with current gas fees and Yearn’s fees combined, a large lump is still needed to offset these costs.
It described the DeFi Pooling system as a way to bring DeFi operations like depositing, withdrawing, and rebalancing into a scalable and low-cost Layer 2.
“This new mechanism enables users to trade from the comfort of their L2 account, gas-free: they can lend money on Aave and Compound, invest in YFI or Harvest, or become an LP on Uniswap, Balancer, or Curve.”
Essentially, DeFi users will be able to use the StarkEx smart contract service as an intermediary, which will pool their assets in order to deposit into L1 protocols such as Yearn.
Users depositing and withdrawing will be matched using a Broker Pool that coordinates demand and transacts with DeFi on behalf of its users. Rebalancing will also be possible as the system uses an off-chain token to represent the strategy in question.
More Improvements in Version 3
The blog added that the upcoming StarkEx v3 upgrade to the firm’s Ethereum based zk-Rollup platform will support L1 limit orders and enable smart contracts on L1 to submit a trade on L2. The Loopring DEX already does something similar for its users.
Starkware concluded that, in order to make DeFi accessible to millions of users, there must be massive scale and lower costs.
“It is the DeFi equivalent of taking a commercial flight instead of a private jet. If DeFi wants to scale to the next 10M traders, this is the way to go.”
At the time of writing, the average Ethereum transaction cost was $9.60, according to bitinfocharts.com.
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