The new episode of Blockchain and Booze was all about the Layer-two solutions and their use on the Ethereum network or Bitcoin Era. The show featured Stani Kulechov, CEO of Aave, Jack O’Holleran, CEO of Skale, and Antonio Juliano, founder of dYdX, the experts of the blockchain industry. The discussion was started with the high fees and was quickly converted to the advantages of decentralized finance. Transferring an Ethereum transaction is becoming more and more expensive and the network gets heavily congested; Layer-two solutions can be very helpful in this situation, it can decrease the load of the network and can also make transactions fast and less expensive. As Aave’s Kulechov stated, the disruptive potential of layer-two solutions is massive. Not only are they incredibly promising, but they are still a nascent technology that has yet to be fully implemented: “Lots of these [layer-two] developments on Ethereum aren’t even being deployed yet. We’re still very early on scaling up, but the huge number of people executing on layer one is an issue.” The three guests are in support of Layer-two as it can be a big step towards making the decentralized system more efficient and powerful. But the question that arises here is how Layer two actually work does.
Working Procedure of Layer-two explained:
When coming to the working procedure of Layer-two O’Holleran gave a brilliant example that stated, the settlement layer of Ethereum is the game of poker and layer-two is the record of gains and losses. In the games of poker, the players don’t cash out their winnings after every game instead, they just maintain a record of their wins in a ledger at the table; after the player decides to not play anymore, and they cash out their winnings. Similarly, in layer-two solutions, the users can trade with tokens in the layer-two network till they want to exchange it with Ethereum.
DeFi is short for Decentralized Finance, or which has no authority to control over. DeFi has many advantages such as transparency, free for all services, etc.; upon asked about the “end goal’ of DeFi is, O’Holleran responds after a short pause, “The power of these systems goes beyond DeFi. Marketplaces, social media, gaming: These can all be disrupted through decentralization. Ultimately, we want to democratize finance.” And Juliano adds to the statement “The goal is really big. The financial system is the most permissioned, trusting system in the world. We can build something parallel in DeFi — small at first, but eventually, it could be more profitable to use DeFi because of better interest rates.” The DeFi space appears huge and stable to many people as it crossed $100 billion but, when it comes to the financial view it is a very meagre amount. O’Holleran predicts that “The smart CeFi business will begin to figure out how to inject them into DeFi, and the DeFi space will improve as a result.” CeFi means Centralized Finance and it means that some companies and institutions store their funds to provide services.