🎙 Early Access: Building DeFi on Layer 2 | Synthetix, Loopring, Immutable
Description
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53 – Building DeFi on Layer 2 | Synthetix, Loopring, Immutable
Guests:
Justin Moses - CTO of Synthetix
Robbie Ferguson - Co-Founder & President of Immutable
Matt Finestone - Head of Business Development at Loopring
We discuss how these three voices in the crypto space have been integral in building successful DeFi products on the Ethereum mainnet. Listen in for a deep-dive into the different methods these protocols have taken to implement their apps on an Ethereum Layer 2.
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Relevant Links:
Vitalik’s Incomplete Guide to Rollups
Transcript
David Hoffman
All right, Bankless Nation. We’re here with Matt Finestone of Loopring, Business Development at Loopring. We're also here with Justin Moses, who's the CTO of Synthetix. And then also last but not least, Robbie Ferguson, who is the co-founder of Immutable, which is the studio behind Gods Unchained. So Matt, Justin, and Robbie, welcome to Bankless, and we're so excited to have you guys on the show today.
Robbie Ferguson
Thanks for having us, David.
David Hoffman
L2 implementers, assemble! Gentlemen, you guys have all been invited here because you share something in common, you have all built and deployed functioning applications to the Ethereum mainchain and have seen success and adoption in the usage of your apps, which is already a feat. But there's something even more unique about their respective projects that all of you guys work on, and that each of you guys have implemented or are in the process of implementing, which is your guys's app being deployed on Ethereum L2. Synthetix is offloading much of its infrastructure onto optimistic rollups. Loopring is building a complete payments and exchange platform on zk-roll ups. And Immutable is building an NFT asset exchange platform also on zk-roll ups. So again, we brought Jesse, Robbie, and Matt here to tell us the story of their app, their need to scale and their process thus far. So let's start with with you, Matt, and Loopring. Tell us about the nature of your app. What does it do? And at what point did you realize that Ethereum mainchain capacity just wasn't going to be enough?
Matt Finestone
Thank you, David. Yeah, really excited to be here with fellow L2 implementers. Yeah, so Loopring is a bit different than I think my compatriots here. It's the fact that we were a protocol, and then we built products. And then we built a new protocol ourselves, the L2 protocol to augment the products. So the application did not force us to kind of look elsewhere for a layer two, we built it ourselves. So we're kind of a layer-two protocol and layer-two products. But yeah, we realized long ago that like, you know, we had no business doing what we were trying to do on Ethereum layer one, we're building order book exchanges, the experience was really poor on Ethereum layer one. So we looked for scalability. This was early on, rollups were just kind of being whispered around. And we built our zk-roll up specifically to scale our order book exchange. So we built an application specific zk-rollup, and then you know, we start learning and we actually have users and are iterating. So the product changes a bit and then we enhance the protocol to support AMMs on layer two as well. And then payments as well. So what came from just like an order book DEX protocol, really turned into an order book and AMM exchange and payments protocol. Yes, a bit of a golden all over the place there. But as you see, we kind of did like a full loop. No pun intended, honestly. And yeah, that's where we're at right now.
David Hoffman
Maybe you can talk a little bit about how and why building an order book exchange on the Ethereum L1 was such a pain, like why did that not really work out?
Matt Finestone
So well, very briefly, the biggest thing is to get liquidity on order books, you really need market makers or liquidity providers that are in control of their quotes, what they're, you know, quoting to buy and sell and 15 second blocks and gas crisis to submit to potentially cancel does not allow them to do their thing. And kind of quote, as soon as the market's moving, be quick and cheap, like low latency, low fee. So it's really like a non starter, it's maybe one of the worst things you could do if you're trying to replicate that legacy style order book on a blockchain. But layer two allows us to really replicate that performance, you feel like you're on Coinbase Pro or Kraken except you're on this layer completely coupled to Ethereum base layer security.
David Hoffman
Market makers, even with Ethereum before scaling was really an issue in the way that gas prices are today, those like 15 second block times, and you know, even pennies worth of a transaction, it was already like that without the congestion that we have today, it was already a poor experience for end, you know, people who are managing order books and need to be able to basically have instantaneous control, not 15 second delays or pennies at a transaction. So even before Ethereum was congested, the L1 was never ever going to be able to do what you guys wanted to do.
Matt Finestone
That's a great point. Actually, I didn't think of that kind of theme here that like you know, Justin and Synthetix were forced after like their large success on layer one already. And potentially same with Robbie. We couldn't do what we wanted to do even a few years ago. That's very true. And I guess we'll jump to this but the layer one not being suitable for this type of behavior is actually kind of what spawned AMMs where these market makers don't need to jump in and be quick. You're just kind of dumping your money and letting a function do the thing. So it kind of came out of the environment that optimized for it.
Ryan
Yeah, Matt, they really came out of necessity, right? It was due to this constraint of basically, you know, low amounts of transactions per second that the automated market maker model became so successful and so popular. Maybe Robbie, for you kind of same question. Can you tell us a bit about the nature of your application? And at what point you decided that you needed layer two?
Robbie Ferguson
Yeah, of course, the point was actually really early, when we were first launching the original sale of Gods Unchained. It was at the same time FCoin was doing their exchange listing. And I don't know if everyone watching this remembers, but the way they incentivize that was basically as poor as you get, with the incentivize to send transactions to the network with high gas fees. And so for the first time ever, we were seeing gas fees of like 150, 180 gwei. And we did some innovations then which were fine, but fundamentally we did the math, we were like, okay, if we even get to 30% the size of Hearthstone, so a medium sized game, we are taking up some absurd amount of the Ethereum blockchain via NFT transactions, particularly because NFT transactions are a ton more expensive than just ERC-20 transfers, like you can transfer a million dollars worth of ERC-20 value for a fixed cost. So there's a fundamental difference between fungible tokens and non-fungible tokens. And so in picking a solution, really, there were no available solutions I would say three years ago, and there were ideas being thrown around state channels that have yet to come to life. Plasma chains also really have not been implemented in a mainstream way. And this, I think, was what draws people to things like new layer ones or sidechains. And then we had this magical thing called a zero-knowledge proof come out, which I remember being obsessed with when I first heard about it, especially the different parables of ways of explaining it like the parable of the cave, or, you know the numbers and how it's all kind of like probabilistically determined, which gave me some rough approximation of the mass, which is probably like 1% of what it actually is. But this is, as vitalik says, like, the way it will scale. And s
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