Scaling DeFi — Layer One

This article was first published on 0x Blog - Medium

Scaling DeFi — Layer One

A visual tour of Ethereum’s scaling challenge

If you have used DeFi recently, you have experienced sticker shock from transaction fees. It is pretty normal nowadays to pay tens to hundreds of dollars in fees for an Ethereum transaction. At these prices only whales can trade profitably and you can forget about lofty goals like banking-the-unbanked or permissionless financial infrastructure for everyone. Ethereum is becoming a place for the rich.

Small trades can end up paying more than 10% in fees.

The high fees are only a symptom of the larger blockchain scalability problem, a problem so notorious it has it’s own Wikipedia page. It is the biggest limitation of current blockchains, but there are more limitations such as long finality times, susceptibility to front-running, cross-chain interoperability, etc.

We want to create a tokenized world where all value can flow freely and blockchain limitations are not helping our mission. This is why 0x Labs has a team of research engineers developing solutions to tackle those limitations. In this post, we will explore what Ethereum’s limits look like and how it affects you, the DeFi user. We will also briefly cover next-generation blockchains. In follow up posts we will explore a different class of solutions, layer two, and present our own strategy to serve the needs of DeFi.

To start, remember that Ethereum transactions have different sizes measured in gas. Transactions are collected in blocks which are created about every 13 seconds. Each block has room for a limited amount of transactions, known as the gas limit. Right now, each block has room for about 12 million gas worth of transactions. A plain ERC-20 token transfer takes about fifty thousand gas. This means blocks can contain at most 240 token transfers, or about 18 transactions per second. DeFi transactions often ...

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0x Blog - Medium

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