With the explosion of the DeFi space as a whole, primarily being led by Ethereum – we saw Ethereum’s gears clogging up ever so often, and resulting in shooting up of gas fees on the network – and as a result Ethereum based layer-2 (L2) solutions were born. These L2 projects and their parallel blockchains have been gaining a lot of traction, attention and usage lately, thanks to the fact that these are effectively able to deliver improved transaction speeds and lower transaction costs.
The difference between a layer 1 and a layer 2 solution is pretty simple, as in they differ in their role and focus on the blockchain. Layer 1 is built to improve the blockchain architecture while the layer 2 is nothing but the building of third part networks on top of the main Ethereum blockchain. Layer 2 is a secondary framework ensures that while the central layer, or layer 1, provides security, the L2 offers better speed at cheaper costs.
In this article, we will look at some of the most popular layer-2 crypto projects on the street that you need to know about and keep an eye out for.
Layer 2 Solutions
Crypto PROJECTs IN BRIEF
|This is one of the most popular Ethereum based layer 2 scaling solutions running on the platform, thanks to its active partnerships and innovations.|
|LOOPRING (LRC)||Founded by an ex-Google software engineer, Daniel Wang, Loopring is a L2 solution on the Ethereum blockchain that seeks to make trading assets and making payments on the Ethereum platform faster and cheaper without sacrificing security of the network.|
|ARBITRUM||Founded by former US White House Chief Technology Officer, Ed Felton – Arbitrum is one of the fastest growing DeFi platforms in the market and is expected to even cross Polygon is this rate of progress continues.|
|OPTIMISM(OP)||Quite similar to Polygon, Optimism is yet another effort at improving the speed of Ethereum transactions and cut costs by settling them on another parallel blockchain using data compression techniques.|
|IMMUTABLE X||One of the most unique layer 2 solutions on this list, Immutable X is a blockchain platform that simplifies the creation of non-fungible token (NFT) projects for developers.|
|XDAI CHAIN||It has been live since late 2018 and uses a stablecoin called xDai as its native crypto to run the blockchain. According to the project themselves, transactions on the xDai chain are “very fast, very inexpensive, and require a single token (xDai).”|
|ZKSWAP (ZKS)||This is another very unique layer 2 scaling solution built on top of Ethereum blockchain. This is an automated market maker (AMM) type decentralised exchange (DEX) powered by a zkRollup technology.|
|SKALE||Skale is another open source, layer-2 scaling solution that tries to solve the scaling problem on Ethereum compatible blockchains be creating elastic sidechains that can be used by decentralised applications (dApps) can use to run their transactions.|
Polygon is undoubtedly one of the most popular L2 chains out there. By market capitalisation, it is the largest Layer 2 solution powering Ethereum scaling and infrastructure development. The best benefit of using Polygon is that it is well tested and developed and it is already in use by many projects like Sushiswap, Aavegotchi, Chain Games, Quickswap etc.
It also, recently became the only blockchain firm to be selected for Disney’s accelerator program and it has also become the home for many of the estranged NFT projects from the failed Terra LUNA blockchain ecosystem that had imploded back in May 2022.
Raise your hand if you remember your first Disney experience like it was yesterday 🙋🏻♀️ #disneyfeels
We are excited to announce that Polygon has been chosen to be a part of the Disney Accelerator program 🎉https://t.co/hk6gZziy8X
— Polygon (@0xPolygon) July 13, 2022
It grew extremely popular thanks to its scalable nature and near instantaneous transaction speeds. Each Polygon sidechain can theoretically achieve 2^16 transactions per block. According to some reports, the protocol has achieved up to 7,000 TPS on a single sidechain on an internal testnet. This is a vast contrast from Ethereum’s own speed of about 14 tps.
According to Defillama, Polygon currently has a total-value-locked of about $1.32 billion as of writing and had touched an all-time-high of $9.89 billion back in June 2021.
Read more: Polygon vs Ethereum
Founded by an ex-Google software engineer, Daniel Wang, Loopring is a L2 solution on the Ethereum blockchain that seeks to make trading assets and making payments on the Ethereum platform faster and cheaper without sacrificing security of the network. In more technical terms, Loopring is a protocol that is used for building non-custodial, orderbook based decentralised exchanges (DEXs) on Ethereum.
It processes and routes crypto trades in a decentralised manner by matching sellers and buyers at a specific price without ever requiring the possession of the buyers’ or the sellers’ funds.
Loopring could be confused with other DEXs like Uniswap or SushiSwap but here’s the difference. As mentioned earlier, Loopring is a L2 chain, which means it is built on top of the Ethereum mainchain (layer 1) – while Uniswap and SushisSwap are built directly on the layer 1.
Other than that, Loopring is also known for its use of zkRollups or zero knowledge rollups, which is unique to this L2 chain and very different from the likes of Arbitrum and Optimism.
Arbitrum is a layer 2 project that has gained a huge popularity in the DeFi space, especially considering how recently it has been launched, back in May 2021. Founded by former US White House Chief Technology Officer, Ed Felton – Arbitrum is one of the fastest growing DeFi platforms in the market and is expected to even cross Polygon is this rate of progress continues.
However, peculiarly, unlike Polygon – Arbitrum doesn’t have its own token and hence doesn’t have any staking mechanism in place. Rather, it uses Ethereum’s main chain to verify transactions. Due to this functionality, Arbitrum’s gas fees happen to be slightly higher than that of Polygon’s but still less than Ethereum’s own gas fees.
Recently it even announced that it is parent entity, Offchain Labs, is taking over Prysm Ethereum Client – the team behind Ethereum’s leading consensus client.
We’re extremely happy to announce that we (@OffchainLabs) are acquiring @prylabs, the team behind Ethereum's leading consensus client!
Let’s dive into details!🧵👇https://t.co/qIp5JqvZRi
— Arbitrum (💙,🧡) (@arbitrum) October 12, 2022
According to Defillama, Arbitrum currently has a total-value-locked of about $1.08 billion as of writing and had touched an all-time-high of $2.64 billion back in November 2021.
Read more: Arbitrum vs Optimism
Quite similar to Polygon, Optimism is yet another effort at improving the speed of Ethereum transactions and cut costs by settling them on another parallel blockchain using data compression techniques. The unique differentiating factor of Optimism is its use of a new kind of scaling methodology called ‘optimistic rollups’ whereby multiple transactions are ‘rolled up’ into one transaction and settled on a different blockchain, receipts of which are fed back into the main Ethereum blockchain.
This ‘optimistic rollup’ is a kind of rollup that, as the name suggests, optimistically assumes that all transactions in the rollup are valid. Hence, by this method – the process is able to save a lot of time since individual transactions do not have to be submitted with direct proof of their validity.
Optimism was initially launched back in June 2019 and after a series of alpha testnets and iterations, the open mainnet was finally launched in December 2021. It has gained in popularity thanks to the fact that it is able to cut Ethereum gas fees by a hefty 129 times, according to Dune Analytics. Thus, this formes a good contender in the layer 2 space.
Read more: Polygon vs Optimism
One of the most unique layer 2 solutions on this list, Immutable X is a blockchain platform that simplifies the creation of non-fungible token (NFT) projects for developers. The main objective of this protocol is to achieve security and scalability of the network without compromising on either of them.
It also strives to offer an exchange protocol that ensures NFTs are traded in a decentralised and open ecosystem secured by Ethereum’s blockchain technology. Immutable X uses a rollup technology offered by StarkWare. So, rollups are essentially systems that execute on-chain transactions outside layer 1 and thus are able to reduce fees and improve mass adoption and participation.
Immutable X protocol was co-founded by Robert and James Fergusen and the platform was launched by the company Immutable back in 2018. The company has also developed and published multiple NFT gaming projects such as Guild of Guardians and Gods Unchained.
The xDai chain is an Ethereum network based sidechain that also happens to use the more energy efficient proof-of-stake (PoS) mechanism. It has been live since late 2018 and uses a stablecoin called xDai as its native crypto to run the blockchain. According to the project themselves, transactions on the xDai chain are “very fast, very inexpensive, and require a single token (xDai).”
As mentioned earlier, xDai is a stablecoin but it functions very differently from other stablecoins like Tether or USD Coin as while others operate on Ethereum, xDai chain has its own separate network.
However, it has been recently taken over by the Gnosis chain. So, Gnosis is an Ethereum Virtual Machine (EVM)-compatible blockchain network that also happens to use a proof-of-stake (PoS) consensus mechanism. Gnosis now uses xDai stablecoin to provide a means of reducing gas fees incurred on transacting on the main Ethereum network while also at the same time improving transaction speeds.
Read more: Top Stablecoins
This is another very unique layer 2 scaling solution built on top of Ethereum blockchain. This is an automated market maker (AMM) type decentralised exchange (DEX) powered by a zkRollup technology. It was developed by L2Lab and is running on the Ethereum mainnet. It enables the transfers of all tokens to layer 2 and guarantees consistency by continuously generating zero-knowledge proofs. It essentially allows exchanges to execute swaps with zero gas fees and unlimited scalability.
It is pretty similar to Loopring in its functioning, as in both use zkrollups to run its DEX. zkSwap’s primary aim is to solve scalability issues with layer 1 DEXs. It does so by solving transactions off the chain, then batching them together and finally verifies layer 2 transaction state proof with layer 1 using zkrollups.
Read more: Top Decentralized Exchanges (DEXs)
Skale is another open source, layer-2 scaling solution that tries to solve the scaling problem on Ethereum compatible blockchains be creating elastic sidechains that can be used by decentralised applications (dApps) can use to run their transactions. These elastic sidechains divert processing off the mainnet and process them faster and at a cheaper cost.
Skale was conceptualised back in 2017 by co-founders Stan Kladko and Jack O’Holleran who actually wanted to create dApps but ran into problems while trying to scale them. That’s when they realised there was a need for a solution to solve the scaling problem for dApps on the Ethereum network.
We now have a world where DeFi is expanding at a much faster pace than ever before and thus, these platforms come in to play a very crucial role to improve the transaction speeds and reduce costs to make it more palatable and improve adoption amongst the masses rather than just in the tech community. Hence, these projects definitely need to be looked at and kept an eye out for as they could potentially revolutionize DeFi as we know it.
Read more: Crypto Price Predictions