Crypto is Decked Up For Christmas

Uniswap v3 Launches on Polygon

In late November, members of Uniswap’s team proposed launching the decentralized exchange on Polygon, a layer-2 solution for Ethereum. Just a few days ago, that proposal gained the overwhelming approval of the community — with 99.3% of voters in favor of the launch.

Today, Uniswap finally rolled out on Polygon. It’s the first non-Ethereum chain that the DEX giant has expanded to. It’s a huge vote of confidence in Polygon, which rose 11% on the launch.

In the first two hours of the DEX’s formal launch on Polygon, its TVL rose to $4 million, with a 24-hour volume of $315,000. There’s plenty of room to run, though, as evidenced by Uniswap’s commanding presence on Ethereum. On there, it has become a multi-billion dollar DEX. Only time can tell if its recognizable brand will attract the attention of Polygoners.

Uniswap will have some catchup to play, though. Quickswap, arguably the premiere DEXes on Polygon, has over $796 million in liquidity (and 24 hour volumes numbering in the hundreds of millions.) It’ll also find vouch for attention among a swath of Ethereum-denominated DEXes and AMMs, such as Aave, SushiSwap, Curve, and Balancer. However, there’s plenty of pie for everybody — Polygon’s total value locked is $5.26 billion (ex-staking and borrows), and there’s fair odds that figure will continue rising.

Uniswap is also in beta on Arbitrum, a layer-2 solution, where its TVL has grown to over $62 million in mere weeks. 

$UNI.X was up 6.27% today to $15.82. $MATIC.X was up 7.7% as of this writing, settling in at $2.52.

What is Layer-1 and Layer-2 (and Why Does it Matter?)

If you’re involved in crypto in any way, you must have heard of blockchain technology, which is a distributed ledger system that keeps a digital record of information or data. There are many benefits to blockchain technology, such as decentralization, trustless interactions, and security. 

To work smoothly, the blockchain network must be able to process information or data efficiently. The scaling problem arises when the amount of data passing through the blockchain is limited by its insufficient capacity.

For instance, the Bitcoin blockchain network processes about 7 transactions per second (TPS), whereas VisaNet, the centralized electronic payment network, can process approximately 1,700 TPS.  

In order to solve the transaction speed issues and improve the efficiency of blockchain networks, developers work to increase the scope of what a blockchain can do. In other words, it allows for more transactions per second and faster processing. These are called scaling solutions, which alleviate the transaction problems of the blockchain by introducing a respite without requiring more blocks or introducing other measures that could compromise decentralization and security. 

Below is an outline of the differences between two types of scaling solutions – Layer 1 and Layer 2:

Layer-1 Scaling solutions: Layer-1 networks are the “main blockchain network” — Bitcoin, Litecoin, and Ethereum, for example, are Layer-1 blockchains. A layer-1 scaling solution would look to solve problems natively on chain, rather than outsourcing the problem.

For example, one way that Ethereum hopes to reconcile its scalability problem is through Sharding, which decomposes transactions into smaller pieces. An update like Ethereum’s Eth2 update or Bitcoin’s SegWit are examples of layer-1 scaling solution.

In summary, layer-1 solutions are meant to change the rules of a blockchain, mostly with the goal to increase capacity, speed, and efficiency. The biggest benefit of layer-1 solutions is that they attempt to resolve a blockchain’s scalability problem on-chain.

Layer-2 Scaling solutions: However, making changes on layer-1 can be a time-consuming exercise. Bitcoin and Ethereum, for example, have billions already circulating on-chain. For that reason, making changes is hard — and might even be downright dangerous. That’s one reason for the emergence of layer-2 networks. Layer-2 operates on top of a blockchain to improve its scalability and efficiency.

Examples of layer-2 networks are Bitcoin’s Lightning Network and Polygon and Arbitrum One for Ethereum. These chains exist to help resolve the main chain’s scalability issues in a variety of ways.

However, layer-2 technology also takes on other forms. Scalability engines, such as Starkware and Optimism, provide scaling tech for blockchains, enabling a growing number of exchanges and platforms to utilize networks like Ethereum. 

Other Scaling Solutions

Sidechains: Sidechains combine the benefits of layer-1 and layer-2 scaling solutions. A sidechain is an additional blockchain linked to the main chain, like the one of Bitcoin’s chain. They are linked by a two-way peg (2WP), which is a protocol that lets cryptocurrency be freely transferred from the main chain to a layer-2 chain with the condition that a third-party is trusted. The Liquid Network is an example of a sidechain. It is attached to Bitcoin’s main chain. 

Parachains: Parachains stand for parallel chains. Parallel chains are connected to one another in an interconnected system of blockchains. All of them are based on the same framework, so they have the same security attributes, and they are linked to the central relay chain. The Polkadot blockchain network is based on this principle. Using parachains allows for very fast transactions as the workload is distributed efficiently. 

Which scaling solution is the most effective?

The purpose and use of each scaling solution are different. The bigger question is: can we add solutions to the network whenever we want?

There is a challenge of adding these solutions to already-existing protocols since major cryptocurrencies like Ethereum and Bitcoin have billions of dollars flying around on them. When you have so much money at risk, you cannot make changes all willy-nilly. However, don’t get it mixed up: you can build a completely new protocol and still fail to solve the scalability problem.

Why do crypto investors need to understand scalability?

To place a bet on a token, cryptocurrency investors cannot rely solely on price volatility. It is crucial that investors understand how well a token’s network works. Right now, scalability is a major obstacle to the mainstream adoption of cryptocurrencies.

Take Ethereum for example. It is capable of processing about 15 to 45 transactions per second. If there are more than 45 transfers per second, then any “extra” transactions end up queued up, which could create a backlog of transactions. The only way to “skip” that line is to pay more, which is why Ethereum’s gas fees have ran out of control. Regardless, Ethereum is still slow, which creates a large need for protocols that have been designed to ensure that cryptocurrencies remain fast and scalable for day-to-day transactions.

BitMEX to Launch Native Crypto Exchange Token

BitMEX, one of the oldest crypto derivatives exchanges, announced the launch of its own token today. The company will airdrop the token, which will be called BMEX, to existing and new users by Feb. 1, 2022.

According to the announcement, the first 50,000 users who complete the KYC process will receive 5 BMEX tokens and 10 Tether (USDT) stablecoins. Existing traders will also receive BMEX tokens as they trade. The maximum amount they can earn is 50,000 BMEX per month or 25% of the monthly trading fee. Additionally, there is a referral program that allows users to invite three friends to sign up and complete KYC, which offers 15 BMEX tokens to the referrer.

BMEX tokens are limited to 450 million units. The coins will be minted all at once and vested over a period of up to five years.

“The large majority of BMEX will be spent to reward users and grow the BitMEX ecosystem. An allocation of 20% is reserved for BitMEX employees and another 25% for our long-term commitment to the token and ecosystem,” said BitMEX.

Among the market’s top performers in the last year have been cryptocurrency exchange tokens. Binance Coin ($BNB.X), a utility token used by Binance, the world’s largest crypto exchange, is up 1,535% over the last year. Most of that can be credited with the company’s psuedo-centralized chain, Binance Smart Chain. However, other exchanges have witnessed similar gains: KuCoin’s token $KCS.X is currently up 2,438% and FTX’s own FTX Token is up 757%. Those gains look impressive alongside Ethereum‘s ($ETH.X), which has risen over 557% in the past year.

BitMEX appears to be planning to take advantage of the “financialization” trend amid its controversial journey. Last year, the crypto exchange and its three founders Arthur Hayes, Ben Delo, and Samuel Reed, were sued by the U.S. Commodity Futures Trading Commission (CFTC) for operating an unregistered trading platform and violating multiple CFTC regulations. Reed was arrested last year and later released on a $5 million appearance bond after being arrested earlier this year. Hayes and Delo surrendered to U.S. authorities earlier this year. 

Based on that history, it’s worth watching to see whether or not the crypto exchange can outrun the controversy. However, throwing money at people is one way to quell controversy… and maybe even grow trading volumes. The daily trading volume of the exchange stands at $855 million, which has a long way to run in order to catch Coinbase’s daily volume of $4.172 billion.