Welcome to DeFi D.I.Y., where Decrypt's DeFi whiz walks you through how to use a specific DeFi tool or platform. Today: moving funds around on Hop Protocol.
Moving between Ethereum mainnet and popular Layer 2 solutions like Arbitrum and Optimism is an incredibly important frontier for the crypto space.
And now there's a project to take the hassle out of exploring this new frontier: Hop Protocol.
When you head over to the DeFi app, you'll be greeted with a sort of swap bar, asking which networks and which tokens you'd like to switch between. Hop Protocol, for instance, lets users swap USDC, USDT, MATIC, DAI, and ETH between Ethereum Mainnet, Polygon, Optimism, Arbitrum, and Gnosis.
If you've never used a layer-2 solution, then most of your funds are probably still on Ethereum. So, for the button "Select Network," you'll want to choose Ethereum.
Then, you'll want to select which network you'd like to send your Ethereum to. For this test, let's check out Optimism.
Once you've selected Optimism, you'll also get an estimated amount for how much you'll receive on the other side of the transfer.
After that, all that remains is to hit "Send" and follow the typical instructions on your Web3 wallet, like MetaMask. And, voila, you're now on the cutting edge of crypto.
Also, once the funds are across, it's possible that you won't be able to see your funds in your wallet. Don't panic; they're there, but you may just have to click the "Add Network" button and manually add Optimism to your wallet. MetaMask has a helpful guide for how to do this here.
Finally, if all this seems too difficult or technical, it's also for a good cause. Here's why.
Going layer-2 with (or without) Hop Protocol
Getting more people to make the switch will improve liquidity on these solutions, thus attracting more projects to join, and creating a flywheel that ultimately drops costs and improves speeds for everyone.
The final destination, of course, is a lightning-fast, low-cost crypto market in which all kinds of assets can be swapped back and forth in the blink of an eye. But these days, it's still fraught with technical difficulties.
Perhaps the most frustrating technical difficulty, especially for something that is marketed as “speedy and efficient,” is that of the deposit and withdrawal time on specific bridges.
Whenever you move from the Ethereum mainnet to a layer-2 solution, you have to use something called a bridge.
Moving from Ethereum to, say, Arbitrum takes as long as a normal Ethereum operation (i.e. roughly 10 minutes, depending on the network’s usage).
But as soon as you decide to move those funds back to the mainnet, you face a seven-day withdrawal period where your funds are locked up for a week before being transferred.
In a volatile market like crypto, a week can seem like years for many.
Another pain point for users is of swapping assets between different layer-2 solutions. Instead of being able to move between Optimism and Arbitrum, you would first need to pass through Ethereum. Another huge pain, especially when gas fees are high and time is limited.
There are a couple of projects working to fix this (like Hop Protocol), or at least optimize it until the layer-2 meme really takes off.
And instead of waiting a week to access funds again, it usually only takes a few minutes.
So, if you’ve got some spare coin lying around one of these layer-2 networks, Hop is an easy weekend project to explore another network.