Layer2.Finance

Fraud proofs ensure state correctness[Edit][Issue]

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.^[1][2][3]

• Funds can be stolen if there is no one that checks the published state. Fraud proofs assume at least one honest and able validator.
• Funds can be frozen if the problematic fraud proof mechanism is exploited (CRITICAL).

All data required for proofs is published on chain[Edit][Issue]

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.^[4]

The system has a centralized operator[Edit][Issue]

The operator is the only entity that can propose blocks. A live and trustworthy operator is vital to the health of the system.^[4][5]

• MEV can be extracted if the operator exploits their centralized position and frontruns user transactions.
• Funds can be frozen if the sequencer halts its operations (CRITICAL).

There is no force transaction mechanism[Edit][Issue]

If the users find themselves censored they can do nothing to force the inclusion of their transactions.^[4]

• Users can be censored if the sequencer refuses to include their transactions (CRITICAL).

Regular exit[Edit][Issue]

The user initiates the withdrawal by submitting a transaction on L2. When the block containing that transaction is finalized the funds become available for withdrawal on L1. The process of block finalization usually takes several days to complete. Finally the user submits an L1 transaction to claim the funds. This transaction does not require a merkle proof.^[4]

• Funds can be stolen if the operator does not include user's L2 withdrawal transactions (CRITICAL).