Sep 24, 2020
Rails: A New L2 Product from Loopring and DXdao Enables Instant & Gas-Free Ethereum Transfers
Layer 2 implementations are becoming increasingly important for users, with the regular high gas fees that are experienced recently. If the ETH ecosystem is expected to grow, fast, safe, and cheap transactions are necessary.
Rails is a layer-two payment solution that can transfer ETH and ERC20 tokens between users instantly and gas-free. Rails uses the Loopring zkRollup and Loopring Relayer API to facilitate the non-custodial transfers at near-free costs. zkRollups work by aggregating and compressing transactions off-chain, and proving computation is valid with cryptographic proofs submitted to Ethereum. The result is instant gas-free operations for users but with complete Ethereum-level self-custodial security.
This L2 off-chain product results from a collaboration between DXdao and Loopring to help the community solve a critical issue on the Ethereum network. DXdao is responsible for hosting and managing the front end, while Loopring takes care of all of the protocols and mechanisms that make it possible. Specifically, the open-source Loopring protocol is used, and the Loopring Relayer is tasked with processing and proving the zkRollup blocks.
Rails’ release is just the starting point, with many plans for additional features soon, such as supporting gas-free swaps. For now, Rails is limited to executing gas-free transfers between users and dApps that are registered on Loopring’s zkRollup. In the upcoming Loopring v3.6 release (circa December 2020), users will be able to transfer assets to any Ethereum address, not just those already on the rollup.
Read here for additional updates in Loopring 3.6.
At the moment, Rails is comparable to the early stages of Bitcoin’s lightning network. However, the growth potential is there. Loopring already has Rails enabled, but the real value of this product will be seen when users participate in volume, creating a network effect, and also moving the needle on decreasing Ethereum gas prices.
Registering an account, depositing assets, and withdrawing them will incur regular gas fees, as these are L1 to L2 interactions. In Loopring v3.6, these gas costs are reduced in some cases by several orders of magnitude, so getting on/off Rails will be cheaper.
For now, the key is in the transfer function, which enables near cost-free transactions. All that is required is that both sender and recipient are on Rails. Initially, transfers will be completely free for users (Loopring completely covers the overhead costs, as they are negligibly low).
In the future, Rails may incur a small fee on transfers, but this will be independent of gas costs, i.e., a flat fee of 0.01 DAI can be used, or 0.02% of a transfer amount, etc. Users will not be affected and certainly not incapacitated by spiking gas fees.
In the future, DXdao may end up hosting its Relayer, which will enable the app to improve availability and censorship resistance of the system. However, this feat is non-trivial, especially for a fully on-chain DAO like DXdao. The upcoming v3.6 will support AMMs on zkRollup, allowing Rails to build out another offering for users. DXdao already has swap products in development, and if merged with Rails, can be the basis of a deeply liquid, highly scalable DEX.
To better understand the solution’s value proposition, we reached out to Matthew Finestone from Loopring, who said:
“It’s fascinating to see Rails be developed and deployed by the DXdao. It’s a massively needed product at this exact time of outrageous gas fees. Because Loopring has been a DXdao member since its inception, it’s great to see this product come out on our protocol. The Loopring team has been laser-focused on the next protocol release (v3.6), so we haven’t had time to put out a proper web-based payment application. Rails does precisely that, with the added benefit of it hosted in the most decentralized manner possible (DXdao, ENS, IPFS).”
After the Loopring update, many DeFi applications can enable this L2 solution to provide users with an easy and effortless method to stake or unstake assets, transfer them to other platforms, or execute swaps, practically for free.
Matthew confirmed this by saying, “I believe Rails will become much more than ‘just’ gas-free transfers, and incorporate other gas-free functionality, such as swaps and beyond.”
However, DeFi dApps will need to adapt their software, which is a significant obstacle to L2 adoption. If DXdao and Loopring get extremely positive results from Rails from a payment standpoint, it could lead to other applications, which will be an excellent outcome for the ecosystem.
Retail Ethereum investors are looking for a sensible way to interact with the DeFi ecosystem. It’s attractive but costly to utilize. Those with smaller crypto quantities could benefit the most from L2 integration, as they won’t have to sacrifice significant parts of their portfolio just to be a part of cutting-edge crypto.
The original Rails build was funded by Loopring, through a 25,000 LRC Gitcoin bounty to Federico Luzzi. It’s an elegant design that enables users to look at their balances and operate efficiently. Join the #Rails channel in DXdao’s Keybase if you would like to test an early version of the app yourself!
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