The second in a series of progress reports on all things layer-2 on Ethereum. Progress report #1 here.Welcome to the second post in a series about layer-2 scaling solutions being designed and built on top of Ethereum! The first post in this series introduced Plasma and state channels as scaling frameworks for Ethereum, along with their caveats and areas of future research. This post will bring you up to speed on the latest developments for different groups working on layer-2 scaling.The State of PlasmaPlasma Group has been hard at work implementing predicates on top of their Plasma Cashflow codebase. Unlike Plasma Cash[flow] and Plasma M[ore]VP, which only allow for simple monetary transfers, ‘predicates’ allow for a measure of smart contract execution. Specifically, verification of predicates is essentially what Bitcoin Script allows; anything that you can do with Script (which is a lot! ) can be done with this, including linking to the Lightning Network. Verification of stateless predicates, however, does not offer the same range of functionality as execution of stateful contracts (which is only available on the Ethereum base chain in this context).LeapDAO has implemented DAI transfers on their Plasma Leap chain. This solves one important roadblock for mass adoption of cryptocurrencies: requiring users to hold volatile assets. The guarantees on fund safety promised by Plasma also make this potentially superior to solutions like xDAI, which rely on an honest centralized operator.Despite the known limitations of Plasma MVP (the sum of safe transaction throughput of all Plamsa MVP chains is constant-factor upper-bounded by the cheap available block space on Ethereum) and suggestions to use a Plasma Cash variant instead, OmiseGO has bravely pushed forward to an alpha release of their Plasma MoreVP, Ari. Hoard, in partnership with OmiseGO, has continued work on Plasma Dog, a game using OmiseGO’s Plasma framework. Unfortunately, rewards in the game reduce to an obfuscated faucet; a good first step, but a significant amount of effort on researching proper cryptoeconomics for games will be needed.Loom has passed a number of milestones, including adding many external validators to their PlasmaChain and building numerous exciting game-oriented applications on top of it. On the research side, Konstantopoulos presented requirements for implemented Plasma Cash-like constructions on top of Bitcoin Script, which could potentially make it simpler and cheaper to implement on top of Ethereum.See Also (non-exhaustive)Plasma Group [Twitter] (non-profit Plasma R&D, Plasma Cashflow, plapps)Plasma Implementers CallsLearn Plasma (resources to learn about Plasma design)LeapDAO [Twitter] (Plasma Leap, Plasma MVP)OmiseGO [Twitter] (Plasma MVP variants)Loom Network [Twitter] (Plasma Cash variants), Georgios Konstantopoulos [Twitter]The State of ChannelsFor the past two months, Counterfactual has been the team to beat when it comes to advances in the channel space. Their third development update featured the release of the Counterfactual Playground, a live working demo of generalized state channels on Ethereum. They’ve since made continuous improvements to their developer toolkit, including improved documentation and open project management. In fact, they’ve made so much progress that Connext have decided to build the next version of their network using the Counterfactual framework.Patrick McCorry and his team recently published a widely-circulated systematization of knowledge paper on layer-2 constructions. The paper presents and analyzes numerous off-chain techniques and their properties, and busts four myths surrounding blockchain scalability and layer-2. The Pisa researcher also recently released a post detailing tradeoffs, challenges, and promising future directions for off-chain scaling.See Also (non-exhaustive)Counterfactual [Twitter] (generalized state channels), Jeff Coleman[Twitter], Liam Horne [Twitter], Josh Stark [Twitter]Patrick McCorry [Twitter] (Pisa, watchtowers)SpankChain [Twitter] (payment channels for streaming services), Ameen Soleimani [Twitter]Raiden Network [Twitter] (payment channel network a la Lightning Network)Connext [Twitter] (payment channel network)Bonus: Building Scalable Decentralized Payment SystemsPlasma aims to a provide a solution to the two-way peg problem for side chains through an exit game, enabling for the first time a trustless two-way peg (one in which your coins cannot be locked up or stolen). However, it is not permissionless — the Plasma operator can censor transactions on the Plasma chain at will. Can we do better? If we had a permissionless consensus protocol for the Plasma chain that discourages block withholding and guarantees progress, then the answer is yes.My research colleague Mikerah Quintyne-Collins and I recently published a paper doing just that, titled “Building Scalable Decentralized Payment Systems,” available on arXiv here. The construction leverages the security provided by commit chains, the trustless two-way peg of a Plasma exit game, and permissionlessness of block production (either mining or validating) through merged consensus. Combined with improvements to block propagation costs, this allows for a side chain that scales well beyond currently deployed or planned layer-2 techniques while retaining virtually identical decentralization and security guarantees to layer-1 Ethereum.Concluding RemarksThe past two months have seen fewer research advances for layer-2 techniques, but a sharp increase in heads-down development and formalization of knowledge. This laying of solid foundations hints towards a promising future for off-chain scaling on Ethereum.Stay tuned for the next installment of this approximately bi-monthly series for the latest updates on layer-2!Check me out on Twitter and Medium for more updates in the future!And check out more from ConsenSys:Disclaimer. The views, information, and opinions expressed are solely those by the author above do not necessarily represent the views of Consensys AG. They are meant for informational purposes only, are not intended to serve as a recommendation or investment advice to buy or sell any securities, cryptoassets, or other financial products.Any reference in this article to any person, organization, activity, products, or services does not constitute an endorsement or recommendation of ConsenSys. This article does not constitute legal or other professional advice or services. ConsenSys is a decentralized community with ConsenSys Media being a platform for members to freely express their diverse ideas and perspectives. To learn more about ConsenSys and Ethereum, please visit our website.The State of Layer-2 Protocol Development #2 was originally published in ConsenSys Media on Medium, where people are continuing the conversation by highlighting and responding to this story.