Settlement
As before, let's start with an example:
Imagine you're a user who wants to transfer funds to a rollup. You transfer the funds to the rollup, and then you see that the funds are gone.
This example is not theoretical, and has happened in the past.
Settlement is the process of bookkeeping funds transfer from the L1 to the L2 (rollup) and vice versa.
In Dymension, L2 (rollup) bookkeeping is done by the Dymension L1 Protocol, where in other popular blockchain protocols, the bookkeeping may be done by the rollup developers themselves.
The importance of standarizing and decentralizing the settlement process is twofold:
- Security: Trusing the Dymension L1 with your funds is trusting a decentralized entity while trusting rollup developers with your funds is essentialy trusting a centralized entity, or in other words -
When you trust rollup developers with the bookkeeping you essentially lose custody of your funds.
- Vulnerability: Rollup developers may accidentally introduce bugs in the settlement logic, which can lead to loss of funds. When Every developer introduces their own settlement logic, the risk of security risk is signifincalty higher.
The most critical security requirement for any L1 hosting rollups is a decentralized and standardized settlement mechanism.