After suffering from high gas fees, DeFi protocols are shifting their focus to second-layer scaling solutions like Synthetix, Uniswap, and Aave.

The surge in transaction fees and network congestion on Ethereum was fully manifested during the recent explosive growth of decentralized finance (DeFi). In order to facilitate broader adoption and enhance user experience in the future, major DeFi protocols such as Uniswap, Aave, and Synthetix seem to be investing in the development of Layer 2 (L2) scaling solutions.

Synthetix Activates Fomalhaut Protocol Upgrade

Decentralized exchange Synthetix has been one of the fastest movers in the space, activating the Fomalhaut protocol upgrade on September 24 and planning to implement the final upgrade, Deneb, on September 29. The Fomalhaut upgrade marks Synthetix's transition to the first phase of Optimistic Ethereum, with the aim of reducing high transaction fees for users and speeding up transaction processing. Synthetix founder Kain Warwick stated that these upgrades demonstrate the platform's commitment to improving user experience:

"I firmly believe that the transition of many DeFi projects to OVM will be a turning point, and DeFi will no longer be a game for whales."

OVM (Optimistic Virtual Machine) is a virtual machine on the Optimistic Rollup chain, the first to bring full Ethereum smart contract functionality to layer 2 scaling solutions. The solution is said to increase transaction processing speeds for smart contracts and decentralized applications to 2000 TPS.

Uniswap V3

On the other hand, Uniswap, the decentralized exchange platform with the highest trading volume and user count in the market, is undergoing a major upgrade to Uniswap V3. While Uniswap founder Hayden Adams previously expressed disinterest in non-composable L2 solutions, he is now showing interest in solutions like OVM that allow for seamless transitions, leaving open the possibility of adoption in V3.

I'm most excited about general purpose OR projects like @optimismPBC which will allow migrating solidity smart contracts without building complex infrastructure on a per dapp basis

— hayden.eth 🦄 (@haydenzadams) July 3, 2020

Aave Actively Researching L2 Feasibility

In addition to trading platforms, decentralized lending protocol Aave released its V2 update in August this year, which will adopt EIP 2612 to reduce transaction costs. In a post last month, Aave mentioned that its aTokens (representing crypto collateral on the platform) will integrate Ethereum Improvement Proposal (EIP) 2612 for gasless transaction approvals. This EIP allows all ERC-20 operations to use the token itself instead of accumulating ETH for gas fees.

Aave also mentioned in previous posts that the short-term goal is to promote the adoption of aTokens to reduce gas consumption, but the team is actively researching the feasibility of integrating the protocol into L2 for long-term development.

9/ Improved aTokens:
The short term objectives is to push on the aToken adoption. ATokens V2 integrate the EIP 2612 for gasless approvals, and the team is actively researching on bringing them to L2.

— Aave (@AaveAave) August 14, 2020