Layer2.finance

Basics

• Based in:
• Started in / Announced on:
• Testnet release:
• Mainnet release: 22-4-2021
• From EthHub (27-4-2021):

"Layer2.finance is a novel solution that allows people to access all existing DeFi protocols at a fraction of the cost by acting like a “DeFi Public Transportation System”."

Audits & Exploits

• Bug bounty program can be found [insert here].
• From L2beat (31-10-2022) regarding the Layer2.Finance deployment:

"Funds can be stolen if

1. there is no one that checks the published state. Fraud proofs assume at least one honest and able validator,
2. the operator does not include user's L2 withdrawal transactions (CRITICAL),
3. the owner calls owner-only functions that pause the contract and drain funds (CRITICAL).

Funds can be frozen if

1. the problematic fraud proof mechanism is exploited (CRITICAL),
2. the sequencer halts its operations (CRITICAL).

Users can be censored if

1. the sequencer refuses to include their transactions (CRITICAL).

MEV can be extracted if

1. the operator exploits their centralized position and frontruns user transactions."

• From L2beat (31-10-2022) regarding the Layer2.Finance-zk deployment:

"Funds can be stolen if

1. a contract receives a malicious code upgrade. There is no delay on code upgrades (CRITICAL).

Funds can be lost if

1. the external data becomes unavailable (CRITICAL),
2. the proof system is implemented incorrectly.

Users can be censored if

1. the committee restricts their access to the external data,
2. the operator refuses to include their transactions. They can still exit the system.

MEV can be extracted if

1. the operator exploits their centralized position and frontruns user transactions."

Governance

Admin Keys

• From L2beat (31-10-2022) regarding the Layer2.Finance deployment:

"The system has a centralized operator. The operator is the only entity that can propose blocks. A live and trustworthy operator is vital to the health of the system. If the users find themselves censored they can do nothing to force the inclusion of their transactions."

• From L2beat (31-10-2022) regarding the Layer2.Finance-zk deployment:

"The system has a centralized operator. The operator is the only entity that can propose blocks. A live and trustworthy operator is vital to the health of the system. Typically, the Operator is the hot wallet of the StarkEx service submitting state updates for which proofs have been already submitted and verified. Force exit allows the users to escape censorship by withdrawing their funds. The system allows users to force the withdrawal of funds by submitting a request directly to the contract on-chain. The request must be served within a defined time period. If this does not happen, the system will halt regular operation and permit trustless withdrawal of funds. If enough time passes and the forced exit is still ignored the user can put the system into a frozen state, disallowing further state updates. In that case everybody can withdraw by submitting a merkle proof of their funds with their L1 transaction.

The system uses the following set of permissioned addresses:

1. Governor 0x1E15…735e (EOA) Can upgrade implementation of the system, potentially gaining access to all funds stored in the bridge. Currently there is no delay before the upgrade, so the users will not have time to migrate.
2. Data Availability Committee There exists a Data Availability Committee with unknown members and an unverified smart contract.
3. SHARP Verifier Governor 0x3DE5…F5C6 (EOA) Can upgrade implementation of SHARP Verifier, potentially with code approving fraudulent state. Currently there is no delay before the upgrade, so the users will not have time to migrate.
4. Broker Owner 0xe0b7…5988 (EOA) Most Broker functionality is restricted only for the owner, it includes managing rides, setting prices or slippages, burning shares.
5. Operator 0x85A7…1EA5 (EOA) Allowed to update state of the system. When Operator is down the state cannot be updated."

Technology

• Whitepaper can be found [insert here].
• Code can be viewed [insert here].

Implementations

• Built on: Ethereum, Celer (22-4-2021)
• Has the regular Layer2.finance deployment and Celer’s Layer2.finance in ZK Proofs Mode Built with StarkEx from StarkWare.

How it works

• From L2beat (31-10-2022) regarding the Layer2.Finance deployment:

"Fraud proofs ensure state correctness. After some period of time, the published state root is assumed to be correct. For a certain time period, usually one week anyone can submit a fraud proof that shows that the state was incorrect. Unfortunately in case of Layer2.Finance only some fraud proofs revert blocks and every successful fraud proof pauses the contract requiring the owner to unpause. All the data that is used to construct the system state is published on chain in the form of cheap calldata. This ensures that it will always be available when needed."

• From L2beat (31-10-2022) regarding the Layer2.Finance-zk deployment:

"Each update to the system state must be accompanied by a ZK Proof that ensures that the new state was derived by correctly applying a series of valid user transactions to the previous state. Once the proof is processed on the Ethereum blockchain the L2 block is instantly finalized. The system state is represented using Merkle roots. The balances of the users are not published on-chain, but rather sent to several well known and trusted parties, also known as committee members. A state update is valid and accepted on-chain only if at least a quorum of the committee members sign a state update."

• From the Celer blog (22-4-2021):

"With Celer’s advanced layer-2 rollup technology, multiple people split the cost of individual layer1DeFi transactions in a completely trust-free and non-custodial way. Enabled by a unified strategy abstraction, Layer2.finance’s community-built and community-hosted “turn-key” UI provides a simple one-stop-shop experience for users to navigate the increasingly complex DeFi landscape."

Roadmap

• Can be found [Insert link here].

Pros and Cons

Cons

• The system has a centralized operator (31-10-2022).

Team, Funding, Partners

Team

• Full team can be found [here].

(:

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