L2 Protocols

The Layer-2-protocols or L2 refer to solutions for the Ethereum main chain (Layer 1 or L1) to help reduce gas fees and increase transaction throughput. The growing demand from DeFi and especially from NFTs in 2021 had enormous effects on the ETH gas market [1].

In order to give users alternatives to using the Ethereum L1 and pay hundreds of Dollars for simple transfers or swaps (which made using DeFi less inclusive than originally intended), various scaling solutions tried to provide a valid alternative. The promise of all of them was to allow users to use Ethereum as it was meant to be and having high transaction speed at affordable low costs.

The way these L2s are reaching the goal can be summarized as follows [2]:

  • L2s process transaction on a sidechain connected to the Ethereum main chain.

  • They roll up many transaction into one large transaction (or block).

  • This roll up is sent to the main chain in one transaction instead of several individual ones.

Based on these solutions, Ethereum tries to counter many of the so-called "ETH-Killers", referring to alternative Layer 1 blockchains, like Solana, Avalanche, or Fantom. Layer 2 solutions pretend to offer all the benefits like low cost and high speed while also offering the security of the Ethereum main chain. On the other hand, to get to this goal, these L2s are often less decentralized than the L1 main chain.

The current state of the L2s and their TVL can be found here:

The current transaction costs for several L2s compared to Ethereum L1 can be found here:

References

1. Statista, https://www.statista.com/statistics/1221821/gas-price-ethereum/

2. Shrimpy, https://academy.shrimpy.io/post/what-is-layer-2-scaling-for-ethereum-the-best-layer-2-protocols-explained

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