- The MakerDAO community will be launching an ‘official’ DAI on Optimism L2.
- Optimism requires a 7 day lockup period when withdrawing tokens back to L1.
- The Maker protocol can reduce this lockup period and allow near-instant withdrawals of DAI.
- This solution can be expanded to cover other token withdrawals in combination with an AMM.
- Initial bridge soon. Fast withdrawals Q3/Q4 2021.
The most anticipated L2 solution Optimism is fast approaching their mainnet launch which is expected later this month. While Optimism brings with it the promise of much needed gas relief, there remains an unsolved problem with optimistic rollups in general - withdrawal times. Optimism’s current design allows for transferring tokens from L1 → L2 near-instantly, but going in the reverse direction requires users to wait 1 week to allow for potential fraud proofs. This is a major roadblock to wider adoption if we want optimistic rollups to be a viable competitor to centralized alternatives.
The Maker protocol is uniquely positioned to provide a solution to this problem while preserving trustlessness and decentralization. Introducing the Optimism Dai Bridge with Fast Withdrawals - a bridge which will allow locking up L1 DAI to mint L2 oDAI as well as allowing oDAI to be burned in exchange for near-instant access to L1 DAI.
How does this work?
First a quick overview of how optimistic rollups work. Unlike side chains, all the data to reconstruct the Optimistic Virtual Machine (OVM) state is present on L1 at all times. There exists an unalterable transaction log called the Canonical Transaction Chain (CTC) which contains all of the individual transactions in a specific ordering. Anyone can look at this transaction log and reconstruct the OVM state. What this means is that although we have to wait 1 week to ensure that the result of the computation of the CTC is correct, we can have off-chain proof that the individual transaction is correct within a few minutes. Read more about Optimism.
The Maker protocol can take advantage of this by offering a token (fDAI) which represents a claim on the L1 DAI through a vault which allows locking up fDAI in exchange for newly minted regular DAI. fDAI is then validated by a Maker Oracle which can verify against the CTC. Upon finalization of the state, fDAI can be gracefully closed out and the vault loan repaid with interest. In effect we will have a stream of 1-week, very safe loans flowing out of Optimism and back into L1. This is a game changer not only for the Maker protocol, but the Ethereum ecosystem at large as we can finally offer a fast, trustless, decentralized off-ramp for optimistic rollups.
Maker as the Primary Optimism Off-Ramp
Maker has an opportunity to become the primary off-ramp for Optimism. The average user will not want to wait a week to get their assets into L1. The Optimism Dai Bridge can serve as the go-to service for exiting L2 in a timely manner. It would be unfortunate for Ethereum if we had to resort to a centralized provider to achieve this.
We believe Maker can solve this problem for three reasons:
- Liquidity - Maker has the ability to provide unlimited DAI liquidity.
- No Counterparties - Most other liquidity providers in DeFi require collateral lockup. This can result in high fees which is undesirable for users. With Maker there are no counterparties so the rate can be fixed.
- Trustless - Apart from the Oracles, there is no trust required to use this system.
General Token Swaps
Expanding on this service we will be able to offer fast L2 → L1 swaps on any token by routing the trade through the Optimism Dai Bridge. Trades would work by swapping the token for oDAI on L2, swapping the oDAI for L1 DAI and finally swapping back to the L1 token. This requires an AMM to be present on L2 (such as Uniswap V3), as well as integrating with an L1 AMM. AMMs may want to support this directly in their own UI as well.
The project will be split into two deliverables:
Optimism Dai Bridge - Soon
This will allow transferring L1 DAI to L2 oDAI and back again with the regular 1 week wait on the L2 → L1 direction.
Fast Withdrawals - Q3/Q4 2021
Allow moving from oDAI to DAI with near-instant settlement. Please note this deliverable is dependent on establishing the safety of Optimism L2 first and foremost.
Due to the permissionless nature of Optimism, we will need to move fast to secure the initial Dai bridge. If the Maker community does not provide an official bridge then we risk another actor filling that role. The mandated actors will work to deploy the first version to coincide with the Optimism launch later this month. We will also be running a declaration of intent to confirm that governance wants to pursue building the fast withdrawal component.