Understanding Blockchains’s Layered Solutions
In order for DeFi to compete with traditional legacy financial systems and their efficiency, blockchain networks need to ensure that they become highly scalable and utility rich.
Blockchain networks need to be highly capable of the following:
- Accommodating a large amount of users
- Processing large amounts of transactions, quickly
- Storing and accessing data efficiently
Only through the careful consideration and execution of the above do blockchain networks, and DeFi in general, stand a chance of superseding the legacy network.
Currently, there are two primary solutions and protocols for scaling blockchain infrastructure, Layer 1s and Layer 2s.
Layer 1 solutions optimize native blockchain performance through the addition of utility. Layer 2 solutions can be defined as 3rd party protocols that integrate with an underlying Layer 1 blockchain in order to increase transactional throughput (processing speed and power).
The Opportunities are Endless
The staggering adoption we have seen not only in crypto, but recently in the more technical DeFi space can be attributed to numerous factors such as the search for self sovereignty and the lack of trust in fiscal policy. However, most notably, the hunt for real yield seems to be the biggest pull factor.
In an economic climate of near negative rates and rapidly diminishing purchasing power, investors and institutions have sought out more attractive wealth preservation and capital growth opportunities. The DeFi landscape provides these products and protocols.
Our focus at KeyTango has been the creation of a layer 2 protocol that provides easy access to, information about and education on the highly technical DeFi landscape.
As previously stated, Layer 2 solutions operate on top of a native Layer 1 blockchain and assist in facilitating the transactional burden. By abstracting the majority of the network’s data processing through auxiliary infrastructure and architecture, the underlying network becomes more efficient and less congested.
For example, the Lightning Network is a Layer 2 Solution built on Bitcoin’s Layer 1 network with the aim of improving transaction speeds.
Importance and Benefits of Layered Solution
The underlying structure of decentralized networks faces a unique challenge known as the Blockchain Trilemma: the balancing act between decentralization, security, and scalability within a blockchain infrastructure.
Blockchain decentralization refers to the transparent distribution of computing power and consensus across a network, while security demonstrates a blockchain protocol’s defenses against security threats. Both are considered of paramount importance to the function of a blockchain network.
Scalability, which refers to a blockchain network’s ability to process and support high transactional throughput and future adoption. Scalability is pertinent due to the fact that it represents the single way for blockchain networks to compete on level ground with traditional, centralized platforms armed with highly efficient settlement times.
A commonly used comparison to highlight the current state of scalability is that Bitcoin processes between 4–7 transactions per second. Visa, on the other hand, transacts approximately 1,700 transactions per second. In order to compete with these existing systems, blockchain technology must match or exceed these high levels of scalability.
There now exists an entire niche of the blockchain industry building towards improving scalability.
Thankfully, a whole generation of scaling solutions built specifically to solve this problem is exponentially increasing the improvement and scaling limits of defi and blockchain technology.
Layer-1 and Layer-2 scaling solutions represent two sides of the same coin: strategies designed to make blockchain networks more efficient and with lower barriers to entry for a rapidly expanding user base. These strategies are not mutually exclusive either, and multiple projects and blockchain networks are exploring combinations of Layer-1 and Layer-2 solutions in order to achieve maximum scalability without sacrificing security or decentralization.
Projections
TVL, Total Value Locked, a metric most commonly used to assess the health of the DeFi industry has begun the bounce back to all time highs pre the market’s May correction.
After the sector saw growth of 8800% over a one year period, it becomes tough to determine the next move. However, the chart below highlights the confidence in the DeFi space and clearly shows the healthy flow of capital and allocation whilst offering insight into what is to come.
keyTango’s Solution
While technology focused scaling solutions allow rapid, high volume transactions, throughput, Keytango’s scalable solution is focused on the user.
Kaytango’s Layer 2 infrastructure unlocks additional utility such as analytical discovery tools, educational content, and most importantly — a simple to navigate, user centric UX that lowers barriers to entry and keeps DeFi fun, not frustrating.
Inclusion for All!
The core crux and credo of this industry, as we know, is decentralization and power to the people. Cryptocurrency brought us inclusion, turning the unbanked, banked. DeFi has brought us opportunity, providing the ability to grow capital and build way beyond traditional means.
