Compound Finance, a leading decentralized finance (DeFi) platform, has announced its deployment on Arbitrum, one of the industry’s largest layer-2 scaling solutions.
Users expect this latest deployment to make lending and borrowing idle cryptocurrencies cheaper. Arbitrum currently has the highest total value locked (TVL) compared to other popular Ethereum scalers, with a whopping $5.8 billion.
Compound III is live on @arbitrum!
You can now use ARB, GMX, WETH, and WBTC as collateral to borrow USDC on Arbitrum.
— Compound Labs (@compoundfinance) May 16, 2023
TVL refers to money sloshing around in a given project or chain. Consequently, it serves as a vital metric for assessing the overall economic activity within the system. Compound Finance hopes to extend its reach and attract customers by distributing on Arbitrum.
Moreover, Compound optimized the latest iteration of its platform, V3, to manage risk by limiting the lending and borrowing of a restricted number of long-tail crypto assets.
Furthermore, the deployment of Compound on Arbitrum is limited to Ethereum (ETH), Arbitrum, Wrapped Bitcoin (WBTC), and GMX, the token that empowers the decentralized exchange named after it.
The Rise of Layer-2 Solutions
The adoption of layer-2 scaling solutions has increased this year. Governance tokens and zero knowledge-powered rollup solutions have arrived, offering consumers faster, cheaper, and more efficient alternatives to the Ethereum mainnet.
Compared to “optimistic” rollup solutions like Arbitrum and Optimism, zk-rollups use more complex cryptography. Some players in this market niche include Starknet, Polygon’s zkEVM, and zkSync, with a collective TVL of $320 million.
Optimistic and zk-rollups leverage rollups, which batch transactions off the Ethereum mainnet and then convert those batched transactions into small data.
This smaller piece of data, called proof, is what Ethereum ultimately validates. In this way, the mainnet remains relatively uncongested, keeping gas prices on the network low.
Quicker transaction speeds and reduced costs await users on Compound’s Arbitrum implementation. These benefits surpass those of the Ethereum mainnet. This move is expected to attract more customers to Compound Finance.
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Compound Finance was one of the first DeFi platforms to experiment with yield farming. It is presently trading at $34.7 per token. Layer-2 scaling solutions like Arbitrum will likely profoundly affect the DeFi market’s future. As it grows and evolves, its impact will be significant.