How gasless Ethereum Layer2 solutions accelerate Web3 adoption
“The current crypto experience is complicated. Each interaction with a decentralized application is a complicated blockchain transaction which the mainstream users don’t understand,” said Aniket Jindal, cofounder of Biconomy. “If we are able to simplify these complexities, we believe we will be able to onboard the next billion users into the crypto ecosystem,” he added.
Ok. At this point you have heard about crazy NFT price increases like CyberKongz 13,000x increase from $40 USD to $535,000 USD in 6 months. Or Axie Infitity NFT metaverse game is on track to make $2.7 billion in annualized revenue. In comparison a gaming behemoth like Activision Blizzard ($ATVI) reported over $8 billion in revenue. Not bad for a game that launched 2 years ago.
At this point you might be certain that Web3 metaverse is going to take over the real world in no time, but not so fast. A major bottleneck to Web3 and NFT adoption is extremely high transaction costs that sideline 99% of the general population on top of high entry costs (own NFT for play-to-earn).
For example, buying the CyberKongz at launch would have cost you $40 USD in NFT itself, but from $200 to $1000 USD in Ethereum gas! At high demand times for minting NFTs it could cost a lot more.
So in order to accelerate Web3 adoption, there have been a surge in so-called layer 2 solutions to bring those entry & maintenance fees down.
A plenty of layer 2s to choose from.
According to the official Ethereum website, “layer 2 is a collective term for solutions designed to help scale your application by handling transactions off the Ethereum Mainnet (layer 1) while taking advantage of the robust decentralized security model of Mainnet”. In short, it allows to pay a lot less in transactions fees, without (considerably) reducing security.
Not going too deep into a technical level, it is suffice to say that most of the L2s built on either with Optimistic rollups or ZK rollups tech. If you want to learn more, check the blog post of Vitalik Buterin himself.
According to the l2beat website, early adopters have already deposited $3.77B in crypto assets to one of the layer 2 solutions and are enjoying significantly lower gas fees than on the Ethereum mainnet.
With the total number of L2s available, Arbitrum is by far the largest with $2.3B in Total Value Locked, followed by dYdX (decentralized exchange) with $841M and Optimism with $266M.
At the time of writing, the gas fees on to swap a token on Ethereum would cost you $29.43 which is equivalent to 2 pieces of 18-inch pie in NYC. If you swapped on Arbitrum it would cost you $4.58 USD or only $1.9 USD on Optimism.
Both Optimism and Arbitrum are using Optimistic Rollups technology, but there are Zk rollups solutions that (currently) are available without any gas fees at all. Those solutions are used by dYdX, DeversiFi, Sorare and ImmutableX. The latter raised $12.5 million in under an hour from its public $IMX token sale on CoinList.
Immutable X — branding itself as the 1st Layer 2 for NFTs, gaming and dApps on Ethereum with zero gas fees and instant traders — is in fact using a L2 solution built on StarkEx by StarkWare company. Indeed, all the 4 companies mentioned above use the same technology.
According to dYdX documentation “StarkEx is a STARK-powered scalability engine for crypto exchanges developed by StarkWare. StarkEx uses cryptographic proofs to attest to the validity of a batch of transactions (such as trades and transfers) and updates a commitment to the state of the exchange on-chain. StarkEx allows exchanges to provide non-custodial trading at scale with high liquidity and lower costs.” However, and a big HOWEVER, it only allows gasless transaction when transactions are recorded on the private shard (which is similar to a corporate database). Meaning that some parts of the layer 2 are centralized.
So there is no free lunch here. In order to have free transactions we have to compromise on decentralization. At least for now.
In the table below from l2beat.com we can see there are several risks in using L2 solutions. External (DAC) (data availability) means that proof construction relies fully on data that is NOT published on chain. Another major risks is contract upgradeability. It allows to change the code (therefore potentially access deposited funds) arbitrary and without notice.
More on Immutable X — decentralization can wait. Users want free transactions!
Despite current risks, Immutable X ecosystem flourishes. Its TVL has increased slightly in 7 days to reach $13.7 million.
Immutable X recently raised a $60 million Series B funding from a multitude of corporate venture firms, including Sam Bankman-Fried’s Alameda Research and Gary Vaynerchuk’s VaynerFund. In total it now raised a total of $77.5 million across two funding rounds.
The number of games or NFT related companies are expanding on Immutable X — a clear sign of demand for gasless transactions. A notable mention is Gods Unchained (card trading game) with almost $34M worth of NFTs traded over Gods Unchained. Another mention is Guild of Guardians (NFT-powered, blockchain-based mobile role-playing game that lets players build a dream team of “Guardians” to compete in guilds, raid dungeons, and craft unique assets to earn tradable rewards).
Check out a great guide by CoinEx with the current and upcoming projects on Immutable X.
Beyond Layer 2 : Biconomy allows to pay on behalf of the end users.
A fresh way to accelerate Web3 adoption is being offered by Biconomy.
It is not a layer 2, but allows Dapps to pay gas-fees on behalf of the gend users, resulting in superior UX and smoother onboarding.
Biconomy, which was founded by Indians, raised $9 million in a private funding round led by DACM and Mechanism Capital. Other investors include Coinbase and investment firm Bain Capital, NFX, True Ventures, Proof Group, Ledgerprime, Primitive Ventures, Genblock, Rarestone Capital, Capital Partners, Huobi Innovation Labs, Eden Block and Zee Prime.
“The current crypto experience is complicated. Each interaction with a decentralized application is a complicated blockchain transaction which the mainstream users don’t understand,” said Aniket Jindal, cofounder of Biconomy. “If we are able to simplify these complexities, we believe we will be able to onboard the next billion users into the crypto ecosystem,” he added.
Through Biconomy’s infrastructure, users can:
- Onboard without paying gas through gasless transactions
- Pay gas in their favorite ERC20 token or your Dapp token
- Avoid blockchain complexities such as changing network
- Enjoy lightning-fast confirmed transactions
The infrastructure takes care of gas optimization and transaction management. They deal with the gas price fluctuations to reduce gas costs by as much as 40%.
According to Biconomy documentation “[t]his is possible using the concept of meta transactions where the user is able to do a transaction on the blockchain with zero balance account and any third party can pay for the transaction fees for the user. We enable this at scale by providing a non-custodial and gas efficient relayer infrastructure network.”
Learn more on how it works here👇
Notable integrations:
Since its launch in 2019, Biconomy has processed more than 3.6 million transactions and currently has more than 200 dapp integrations in the pipeline!
1) Curve Finance
Curve Finance is using Biconomy to do meta transactions to do gasless BTC deposits. When you deposit bitcoin to convert to renbtc which will be used then to be deposited into the pool would require btc holder to have eth to pay for gas. This is a seamless and easy way for people who have idle BTC to provide liquidity to both sbtc and renbtc pools.
2) Perpetual Protocol
Perpetual Protocol is using Biconomy to provide seamless trading experience on xDai blockchain. Main advantage of using Biconomy is gasless transactions where user don’t have to keep xDAI tokens in their wallets to pay for gas fee and also blockchain agnostic transactions that means the end user does not need to change the RPC url in their wallet like metamask.
3) Decentral Games
Decentral Games is using Biconomy on Matic Network to provide a seamless gaming experience to its users by providing gas less transactions on Matic Network. End use just need to get coins like Matic Mana or DAI to play games and not the matic tokens to pay for gas fee.
4) Sapien Network
A social blogging platform with over 40k users, Sapien is using Biconomy to provide frictionless interaction with the platform by enabling gasless transactions. Now Sapien members will be able to freely give Charges and transact in SPN on the platform, unburdened by potentially volatile gas fees and much more.
Instead of a conclusion: what’s next for Web3?
The crypto-metaverse community of builders, investors and users is a working hard on making a switch from Web2 to Web3.
According to the a16z blog, “We are now at the beginning of the web3 era, which combines the decentralized, community-governed ethos of web1 with the advanced, modern functionality of web2.”
With the adoption of Web3, we will free ourselves from the predictable Web2 shackles where at first Web2 companies do everything they can to recruit users and third-party complements like creators, developers, and businesses. But later on, their relationships with network participants change from positive-sum to zero-sum. To continue growing requires extracting data from users and competing with (former) partners — writes Chris Dixon, a general partner at a16z.
With the governance tokens, NFTs that guarantee our ownership we can create more value to the real users of platforms. When (not if) the onboarding and transactions costs decrease, the Life Cycle of user adoption will enter Early Majority stage and the Chasm of adoption will be broken.
