Transactions Across Rollups and Networks Using Perun Channels
Rollups are an emerging technology for scaling the Ethereum blockchain. Applications deployed on a rollup benefit from reduced transaction costs and faster transaction confirmation times. On the downside, rollups require the users to lock up funds which can then only be used within the rollup. For some rollup techniques, it can take weeks to move funds back to the main network, leading to network segregation. We propose to solve this problem by providing a method for establishing channels between rollups, and between a rollup and the Ethereum blockchain (Layer1). State channels allow transferring funds quickly and cheaply between the connected parties. Normally, state channels can only be established within the same network. Our idea is to use virtual channel technology combined with a hub architecture to establish channels between different networks (e.g., two rollups, or a rollup and Layer1 or even between different blockchain ecosystems).
By Matthias Geihs and Marcel Kaiser
Rollups: Status Quo
Benefits of Rollups
One of the most significant challenges within blockchain systems is scalability and resource efficiency. To resolve this issue, an often-referenced solution is a second-layer technology called rollups. Rollups are defined as a blockchain system that offers a certain group of users within a specific context (i.e. a gaming-specific NFT marketplace) an ecosystem that allows faster and cheaper transactions. The transactions in this ecosystem are confirmed differently than on the blockchain and can therefore be performed more efficiently. On a regular basis, the rollup operator pushes the rollup state to the blockchain. In the case of optimistic rollups, a validator committee validates the state. If a validator disagrees with the pushed state, it can take the disputed state on-chain to resolve the dispute in a fully decentralized fashion.
Challenges
As a consequence of rollups being a somewhat isolated ecosystem, high fragmentation of the hosting network (which allowed the transaction efficiency in the first place) occurs. In a bad-case scenario, this fragmentation can lead to a high desynchronization between the main chain and the L2 state. This desynchronization does not only affect the state of the network but also the distribution of liquidity. A more crucial critique of rollup technology is probably the massive delay until funds can effectively be withdrawn. This is due to the possibility to provide fraud proofs within a week in order to revert a set of transactions. This gives the users the possibility to reclaim falsely processed transactions and move the dispute to the first layer. In the case of Optimistic rollups, the withdrawal process can take a week or more. This withdrawal period is antithetical to adoption and usability. In addition to this duration, if another rollup needs to be used for the execution of an investment strategy or a series of transactions, this operation becomes significantly riskier. In the following section, we outline how these problems can easily be tackled with Perun state channels.
Cheap and easy: Cross-Rollup Transactions with Perun
Perun Channels enable fast, cheap, and trustless peer-2-peer transactions. With Perun’s Virtual Channel Technology, transaction channels can even be established between participants of different networks, for example, between a user on an Arbitrum Rollup and a user on an Optimism Rollup, or between a user on a rollup and a user on the main network. This allows circumventing the challenges described above. More importantly, it allows Perun to connect different ecosystems efficiently without additional effort of off- and onboarding funds back and forth. This property makes it attractive for several use cases.
Use Cases
Industrial usage
For micropayments, streaming money and pay per use, these channels can be put to good use. In the case of M2M payments, arrangements can be made so that these transactions can be realized without the participants having to be online. Thus, cases like platooning can be effectively implemented. This is especially interesting because some areas of many countries have unreliable connectivity.
Exchanging currency with CBDCs
In the future, we expect there to be several digital currencies, some based on DLT but certainly not all. Moreover, we expect several retail banks to have some sort of operational digital currency before a CBDC will be provided by the respective central bank. These systems will likely not be natively intercompatible. Therefore, Perun channels could simplify transactions across currency systems, likely even if they do not run on a DLT or a rollup. Thus, Perun can act as a gateway from off-chain to on-chain protocols.
Moving funds across sub-structures
As mentioned above, Perun channel systems can move funds from one rollup to another. However, this can also be realized for subchains of several systems like Polkadot’s shards or Avalanche’s subnetworks.
Being an integral part of the infrastructure: Bridge Service Providers
By providing and maintaining liquidity on both sides of the channel, a business can be part of the infrastructure, offering this instant service for a fee which is lower than on- and offboarding from the respective networks or rollups. Still, there is a very low third-party dependency as channel settlement is still a trustless solution.
How it works
A prerequisite is that there is a liquidity provider that holds liquidity on both ends of the respective channel. They are not required for transactions at all but to initially provide the liquidity for the channel between users. Consider a user A on network M that wants to send funds to a user B on network N, and a liquidity provider LP for M and N. The virtual channel technology allows to atomically, and thereby trustlessly, perform the following transaction steps:
- Transfer X Tokens from A to LP on network M
- Transfer X Tokens from LP to B on network N
Moreover, in contrast to HTLC-based methods such as Connext, Perun virtual channels allow A and B to perform an indefinite number of transactions across networks without the involvement of the hub. This, for example, allows for implementing real-time logic with financial incentives that are executed directly between the channel participants. Smart-contract-like applications can be executed in channel architectures as well.
Conclusion
To sum up, PolyCrypt developed technology that allows a cross-network, cross-rollup channel to be opened by liquidity providers (or their smart contracts) which offer direct transactions and instant settlement with the other network. These transactions are trustless, cheap and extremely fast. The issue of rollups causing delay and therefore fragmenting the layer one ecosystem gets resolved if funds can be moved quickly and cheaply. Perun channels enable several use cases as outlined above, ranging from inter-currency trade to industrial use cases. Moreover, liquidity providers can create a profitable business by providing liquidity to help individuals open up channels without creating a dependency on them.
Remarks
This article is based on our findings from a recent hackathon.
If you are interested in learning more about the Perun Channel Technology and how it can be used to scale your blockchain application, visit our website (https://perun.network/) and our GitHub repo or contact us directly by writing us an email at info@perun.network.
