Layer-2 (L2) refers to technologies or systems built on top of a blockchain’s primary layer, known as layer-1, to enhance its functionality. The goal of L2 solutions is to optimise the underlying blockchain network by providing benefits such as faster transaction processing. Common layer-2 approaches include state channels, sidechains, optimistic roll-ups, and zero-knowledge roll-ups.
While layer-1 focuses on providing security and decentralisation, it can handle only about 1.5 million transactions per day. With a processing capacity of around 15 transactions per second, layer-1 networks often face bottlenecks during periods of high usage.
Layer-2 blockchain solutions aim to address these limitations by operating as extensions to layer-1, forming a separate layer that manages transactions more efficiently. By utilising smart contracts, these solutions offload transaction processing from the main blockchain while still benefiting from the security of layer-1. In summary, layer-1 ensures the network’s security and decentralisation, while layer-2 blockchains enhance scalability. In this article, we will highlight 10 key layer-2 crypto projects.
Top 10 Notable Layer-2 Crypto Coins
Polygon (MATIC)
It serves as the native crypto of the Polygon network, a layer-2 blockchain platform established in 2017. Initially recognized as the Matic Network, Polygon empowers developers to effortlessly generate and deploy their blockchains that seamlessly integrate with the Ethereum blockchain with a straightforward click. Additionally, it facilitates the exchange of data and tokens among various Ethereum-based projects by utilizing the MATIC sidechain.
Polygon operates as both a scaling solution and a framework designed for constructing blockchains compatible with Ethereum. It tackles issues associated with scalability, exorbitant transaction fees, and latency by offering a mechanism for decentralized applications (dApps) to operate on side chains linked to the primary Ethereum blockchain. The Polygon ecosystem is extensive and vibrant, boasting more than 28,000 contract creators, 220 million unique addresses, and 2.45 billion transactions.
Arbitrum
It is an inventive L2 initiative, enabling individuals to construct projects on Ethereum, the prominent layer-1 blockchain. Built by Offchain Labs, the project utilizes rollup technology, consolidating numerous transactions into a single entity, resulting in enhanced scalability and reduced on-chain transaction expenses. With an impressive market cap of $3.05 billion, Arbitrum’s native token, ARB, plays a pivotal role in the ecosystem, allowing users to engage in protocol development decisions and fund distribution through voting. The platform simplifies the transfer of Ethereum to Arbitrum via a bridge, facilitating exchanges with other platforms as well.
Optimism
It serves as a layer-2 scaling solution on the Ethereum network, aiming to lower costs and latency while upholding robust security assurances. Positioned as an extension to Ethereum, Optimism allows users and developers to leverage Ethereum’s security benefits at a significantly reduced expense. Employing Optimistic Rollup technology, it consolidates substantial transaction data into manageable batches, resulting in more cost-effective transactions compared to the Ethereum mainnet. As the second-largest Ethereum layer-2, it boasts $313 million locked in its smart contracts and hosts diverse protocols like Synthetix and Uniswap.
Shibarium
It is a rapidly growing layer-2 scaling network created to accommodate the complete Shiba ecosystem, encompassing the SHIB metaverse and the stablecoin SHI. Constructed on Ethereum’s layer-1 network, it addresses the computational and memory requirements of the rapidly expanding Shiba ecosystem.
To deliver a layer-2 ecosystem on Ethereum, Shibarium strives to enhance scalability and efficiency for the Shiba Inu network. The official launch of the SHIB metaverse is dependent on the implementation of Shibarium, which will serve as the hosting platform for the entire ecosystem, including the stablecoin SHI.
Immutable X
It is a layer-2 network on Ethereum designed to provide speed, scalability, and adaptability with its comprehensive end-to-end web3 solutions. It comprises a robust network equipped with tools and infrastructure for developing the next era of crypto gaming.
The platform incorporates numerous functionalities that empower users to effortlessly create an NFT project. Users can take advantage of Ethereum’s security, experience zero gas fees, and utilize user-friendly APIs. Furthermore, users can engage with the immersive marketplace, facilitating trading and collecting within the immutable marketplace while exploring innovative and captivating projects.
zkSync (ZKS)
It operates as a layer-2 protocol employing zero-knowledge rollup (ZK-rollup) technology to scale Ethereum. The primary objective is to enhance Ethereum’s transaction throughput while upholding its foundational principles of freedom, self-sovereignty, and decentralization on a larger scale.
zkSync is a trustless protocol designed for scalable and cost-effective payments on the Ethereum network, utilizing zkRollup technology. It relies on zero-knowledge proofs and on-chain data availability to maintain the security of users’ funds, making them as secure as if they were still on the mainnet. Additionally, zkSync boasts an ecosystem of decentralized applications (DApps), including Curve (a stablecoin exchange), Yearn Finance (a yield optimizer), and Taker Protocol (DAO-based).
Mantle
It stands out as the first modular layer-2 (L2) solution with a primary focus on achieving widespread adoption and decentralized governance. Its governance relies on the native token, MNT, enabling voting on all decisions related to new initiatives within the network. Mantle’s unique feature includes a modular structure designed to accommodate various transactions and actions across different layers, managed by network participants through Ethereum rollups.
Rollups efficiently move both computation and staged storage off-chain, leading to a reduced computational load sent and processed on layer-1. Despite its launch in July 2023, the project has remarkably achieved a total market capitalization of $3.66 billion, having 3.36 billion tokens currently in circulation.
Loopring
It was established in 2017, operates as a scalable layer-2 (L2) blockchain with a primary focus on delivering secure and low-cost transactions. The platform achieves impressive scalability, processing up to 2,025 transactions per second, thanks to the integration of zkRollups. Its native token, LRC, serves to incentivize various behaviors within the ecosystem and offers numerous benefits. Currently, the token has a market cap of $247.72 million.
Moreover, the blockchain includes a built-in application equipped with an automated market maker (AMM), a payment platform, and an order book exchange. The order book exchange is designed to minimize trading costs and maximize performance, enabling users to engage in trades at economical rates swiftly without the challenges posed by high gas fees and network congestion.
dYdX
It is a decentralized exchange, transitioning from the main Ethereum chain to an L2 scaling solution, primarily emphasizing perpetual derivatives trading. Currently holding the 7th position in terms of DEX volume, the L2 blockchain serves leveraged trading needs for a substantial user base. The exchange’s cross-margin trading feature expands available trading pairs, encompassing ETH-USD, BTC-USD, and LINK-USD.
The platform offers advantages such as low fees, the absence of gas costs, rapid trade execution, and swift withdrawals. Its native token, dYdX, plays roles in staking protocols, governance, and liquidity provision. It has a market cap of $897.54 million. Notably, dYdX has garnered support from prominent venture capitalists, including Polychain and Andreessen Horowitz.
SKALE
For those in search of a distinctive approach to enhancing Ethereum scalability, SKALE presents an innovative perspective. Diverging from conventional layer-2 solutions, SKALE employs a network of independent “sidechains” constructed atop the Ethereum blockchain. These sidechains, referred to as SKALE Chains, offer tailored environments for specific applications, accommodating diverse requirements in terms of security, privacy, and transaction fees.
Developers gain the flexibility to select the optimal sidechain for their projects, whether it is a high-performance DeFi protocol requiring rapid transaction speeds or a privacy-centric NFT marketplace necessitating heightened anonymity. This adaptability fosters innovation and encourages a broader array of decentralized applications (dApps) to thrive within the Ethereum ecosystem, ultimately enhancing the overall user experience.
Should I Invest in Layer-2 Crypto Projects?
Up-and-coming layer-2 crypto projects like Polygon, Optimism, Arbitrum, Immutable X, and dydX are gaining momentum as influential contributors to blockchain technology’s advancement. The growth of these solutions could significantly impact the future development of blockchain. While these projects show great promise for long-term expansion and widespread adoption, it’s essential to carefully research and proceed with caution if considering investment in the native cryptos tied to these platforms.
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