Dharma Embarks on Layer 2 Journey With Optimistic Roll-Ups

Dharma – the DeFi savings application – announced their intentions to build a layer 2 payments system leveraging Optimistic Roll-Ups (ORUs) in an effort to scale payments on Ethereum.

1/
Since we launched peer-to-peer payments, scaleability has morphed from a theoretical problem for us to a pressing concern.

So we’re embarking on building a practical L2 payments system based on the Optimistic Roll-Up paradigm. https://t.co/dNRnQjyEVt pic.twitter.com/cyP4aPKJDW

— Dharma (@Dharma_HQ) March 30, 2020

One of the biggest issues facing DeFi and Ethereum as a whole is the network’s limited transaction processing speeds. As it stands today, Ethereum can handle roughly 15 transactions per second, making transaction costs rather expensive – especially during times of congestion. With many forward-thinking DeFi applications looking to cover gas costs in order to better user experience, the costs can become relatively burdensome for many early-stage projects.

As such, we’ve seen many talented developers dedicate their resources towards a new paradigm in layer 2 scaling – Optimistic Rollups.  While there are dozens of “flavors” in the works – all with their own specific use cases -Dharma hopes to tailor their solution specifically towards helping their savings application scale its peer-to-peer payments feature which launched weeks ago.

1/ 🌶 We are excited to announce that you and your friends can now use Dharma to send and receive USD from anywhere in the world — all while earning interest.

That’s right — p2p payments are live on Dharma!

Check it out today: https://t.co/9vuapGjK6b pic.twitter.com/VgrGDdMH6D

— Dharma (@Dharma_HQ) March 19, 2020

With the specification, Dharma also released a core set of principles aligning themselves to quickly ship a secure L2 system for scaling its token transfers. In short, it includes:

• Simple – support deposits and withdrawals of a single ERC20 token (Dharma Dai)
• Non-Custodial – Users must remain control of their tokens at all times
• Transparent – Anyone must be able to view the current state of the system
• Scalable – The system must scale to support a large userbase, fast transactions, and low gas costs

Background on Optimistic Roll Ups (ORUs) 

Optimistic Rollups are a Layer 2 technology for scaling Ethereum smart contracts and applications to hundreds or even thousands of transactions per second. The solution bundles user-submitted transactions into “rollup blocks” where aggregators submit the transactions in the “rollup block” to Ethereum’s mainnet.

In Dharma’s design, once the block is submitted to mainnet, a 24-hour challenge period begins where anyone can independently verify the block and submit a “fraud proof” if there’s an invalid transaction. If the proof is correct (and there’s an invalid transaction), the submitter is rewarded and the L2 state is rolled back to the last valid block.

Closing Thoughts

With the launch of peer-to-peer payments a few weeks ago, Dharma’s move to build a tailored ORU solution for their application indicates the success of the new feature. With a wave of users leveraging the new feature, Dharma quickly realized the roadblocks ahead for scaling its DeFi-focused version of “Cash App” to millions of users.

Ultimately, the need to scale Ethereum to efficiently process millions of transactions every day is becoming apparent as DeFi products continue to grow and consume an increasing chunk of the network’s transaction capacity. The coming months for Dharma and ORUs as a whole should be exciting as we watch different flavors of the scaling solution go online to Ethereum’s mainnet.

If you’re interested in diving into Dharma’s specification, you can review their proposal here which was done in collaboration with Hypervision Labs.

For anyone looking to jump in on the conversation, feel free to check out Dharma’s Discord or follow them on Twitter for daily updates!