When it rains it pours.
Whether by luck or design, we’ve recently seen a seemingly endless string of Layer 2 (L2) mainnet announcements:
- Matic Network on May 31
- OMG Network on June 1
- DeversiFi and StarkEx on June 4
- Loopring Pay on June 6
- zkSync on June 18
- SKALE on June 30
In this article, we look to add to the conversation by reviewing numbers behind three distinct early L2 solutions.
First up is POA Network’s xDAI.
xDAI is an OG in the Ethereum scaling space, having been established in October 2018 and used for various purposes (from the popular xDAI burner wallet to the Sarafu community currency). Its sidechain allows for transacting DAI at faster speeds and with lower fees than mainnet.
A quick glance through transactions sent to the DAI-xDAI bridge contract highlights a couple spikes in the numbers, in Dec 2019 and March-May 2020. Closer inspection shows that the Dec 2019 spike was due to a migration from SAI to DAI while starting from March 2020, DAI reserves have been put to use earning returns by conversion into CHAI. At a rate of 2% APY, $60,000 put into CHAI at the end of March would have provided a decent return of about $300 by end of June.
Removing these outliers, we can see the deposit history of xDAI more clearly. Both deposits and withdrawals had modest growth at the start of 2019 before dropping down from October. April and May 2020 saw a large bounce up, although these primarily involved 3 wallets making large transactions.
The total value within xDAI show it to be a niche product so far.
Another solution that has been live for some time is Loopring‘s decentralized exchange (DEX). Using zkRollups, it is able to process transactions far more efficiently than normal DEXs.
ETH and LRC clearly make the bulk of deposits. March and June saw massive spikes, with other tokens playing more of a part in the latter month. In both months the amount deposited exceeded $3 million.
Taking out ETH and LRC (Loopring’s token) from the equation allow us to see how other tokens are performing. Unsurprisingly, USDT has the highest deposit amounts out of the rest. More surprisingly are the next two largest tokens — KEEP and DXD. Neither are the most popular tokens out of those listed, but both show clear traction in terms of getting on to Loopring. Overall, we see that deposits of tokens started a growing trend in May.
Another angle to look at is the average USD value per deposit. This metric helps highlight whether the market for a token started with many participants or with a small number of whales. We can see that KEEP had a higher average than others in May. This could be due to the fact that KEEP was just recently released to the market, and the depositors in May were a small number of early holders. Even though ETH made up a big chunk of deposits, the average value per depositor is tiny, indicating a wide distribution of users.
As a DEX, Loopring has a clear use case and looks set to grow the total value held on chain. It is however still a long way for them to climb up the DEX leaderboard.
Tornado Cash is a Layer 2 mixer rather than a scaling solution. It helps users obfuscate their transactions and maintain privacy over their flow of funds.
The striking thing when looking at Tornado Cash data is the sea of Ether. While stablecoins are theoretically available for use, almost the entire volume flowing through Tornado is in Ethereum.
The average number of deposits for Ether is more than 1,000 per month. In contrast, the number of monthly deposits for the other tokens combined were well below 100. It might take you weeks before you can sufficiently mix your tokens!
Most Tornado Cash users seem to move their funds in and out within days. Daily volume has regularly been above $100,000 since May but for large whales, moving sums more than this amount may be too conspicuous at this point.
One recent use case of Tornado Cash was in the recent hack/exploit on Balancer. The attacker used Tornado Cash to hide their source of funds, withdrawing a total of 0.5 ETH on June 27 which was then used to deploy the attacking smart contract.
Perhaps a good (in the practical, not moral sense) measure of Tornado Cash’s success so far is whether the attacker is able to avoid tracking by authorities by their use of the mixer.
Notes for any authorities (or amateur sleuths) reading — one way to start could be to look at ETH depositors x days prior to the attack and triangulate those with addresses that had recently interacted with dYdX or Balancer!
One common strand across the three Layer 2 solutions above are the as-yet low numbers. With more players coming into the game, user demand growing and gas fees remaining stubbornly high, it is only a matter of time before these numbers go up.