Peter Todd breaks down the layer 2 landscape and talks about what new layer twos covenants could unlock.
- What is the f*** is a layer 2? To start, we need to define a layer 1: users can transact on these with passive security
- Layer 2s contain a conglomeration of transactions and have reactive security
- L2s ideally have unilateral withdraws and prevent counterparties from fraud
- Liquid, Cashu, and Statechains are not L2s Todd says, they are “fancy banks”
- Covenants restrict where coins go, not just who can spend them and when
- Why do we want/need better L2s than the Lightning Network? Scaling, liquidity, interactivity. If you used 90% of block space to open lightning channels, you could open 1.1 billion per year
- Channel factories via virtual UTXOs could be a big boon to the Lightning Network. @ArkLabsHQ is leading the way here.
- Final category of L2s that Todd covers: Rollups.
- What covenants should we adopt? Todd says that CTV is good but “not perfect” and is preferable because it doesn’t do *too* much.
