With the increasing number of users, Ethereum is facing problems such as slow transaction speed, high transaction fees, and deteriorating user experience. Layer2 is an effective scaling solution. This article will introduce the principles and popular projects of L2, as well as the challenges it faces.
Table of Contents:
What is L2?
Scaling Solutions
Popular L2 Projects
1. Arbitrum
2. OP Mainnet
3. Base
4. Blast
5. Mantle
Challenges for L2
User Experience
Security and Decentralization
Bitcoin Layer2
The impact of the Cancun upgrade on L2
ZK-Rollup v. Optimistic Rollup
The blockchain world has always faced the “impossible triangle” problem, which means that it is difficult to achieve decentralization, security, and scalability simultaneously on a single blockchain. Taking Ethereum as an example, although it has achieved relatively good decentralization and security, with the continuous growth of users, problems such as slow transaction speed, high transaction fees, and deteriorating user experience have emerged.
In this context, Layer2 emerged to address the issues of inadequate scalability and low transactions per second (TPS), as well as insufficient operational efficiency on Ethereum. It is considered the mainstream solution for large-scale applications on the blockchain network.
To improve the scalability of public chains, there are two approaches: scaling the main network itself (Layer1) and expanding some functionality to Layer2.
L1: Scaling the main network itself is known as “on-chain scaling.” It mainly increases the transaction capacity of the blockchain itself to achieve scalability.
L2: Refers to the second-layer network outside the Ethereum main network, which is a scalability solution for Ethereum. It can be seen as building a “bridge” on the Ethereum main network to solve the congestion and high transaction fees.
The drawback of L1 on-chain scaling solutions is that they need to continuously meet higher performance requirements, leading to endless development. On the other hand, L2 can effectively address the current problems.
L2 is a general term for a series of off-chain scalability solutions, primarily referring to Ethereum’s L2. L2 processes data by reducing the burden on the underlying layer (ETH mainnet) and transferring part of the data processing from the main chain to L2, thereby enhancing the scalability of the entire network.
In the past, sidechains, state channels, Plasma, and other L2 scaling solutions were proposed. However, under the background of the DeFi boom, these scalability solutions failed to meet market requirements. Rollup has become the most promising solution so far. (The working principle of Rollups is to calculate a large number of transactions off-chain and then batch them into one batch transaction before sending them back to Ethereum.)
Currently, Rollups are mainly divided into two types: Optimistic Rollup and ZK-Rollup. These two solutions have gained support from the majority of users in the current market. The following is a brief introduction to the current popular Layer 2 projects.
According to L2beat data, the top five Layer 2 projects ranked by TVL are shown in the figure below. Here is a brief description of each project.
Arbitrum is an Ethereum L2 scaling solution based on Optimistic Rollup technology. It was created by Offchain Labs, a team composed of well-known blockchain researchers and software engineers, in 2021. Its goal is to solve the congestion and high gas fees on Ethereum.
Among all L2 solutions, Arbitrum was the first one to go live and has a certain first-mover advantage. In addition, Arbitrum is almost 100% compatible with Ethereum’s EVM, allowing applications on the Ethereum network to seamlessly migrate to L2. When it went live, 74 projects, including Uniswap V3, were deployed on it.
In October 2022, Optimism launched the OP Stack, an open-source development stack that supports the OP mainnet. It introduces the concept of a superchain, which is a set of L2 blockchains (OP chains) built on the OP Stack. This stack aims to simplify the creation process of L2 blockchains and consists of various code libraries that can be used to build highly customizable L2 blockchains.
Base is a Layer 2 solution based on the OP Stack, launched by Coinbase. It aims to provide an ideal blockchain development environment for developers. Base is closely integrated with Ethereum, relying on its security, and benefits from Coinbase’s support and optimization practices, ensuring that users can switch freely and securely between Coinbase, Ethereum L1, and other interoperable blockchains. Base plans to become a decentralized and permissionless Layer 2 chain, promoting the development of the crypto field.
Pacman, the founder of Blast, launched this L2 project based on the OP Stack in November 2023. Users can deposit Ethereum into Blast to earn staking rewards and additional points, which will be prepared for subsequent token distribution. Blast aims to solve the high gas fees on Ethereum and the fund stagnation in the Blur Bid.
Mantle is a new modular Layer 2 network that aims to improve the scalability of Ethereum while maintaining high decentralization and strong security. The modular design of Mantle has the potential to change the game rules of the Layer 2 track. By separating the three key layers to allow independent optimization, this design makes the network more flexible and scalable without compromising security or decentralization. One of Mantle’s highlights is its focus on improving user experience, especially in the field of blockchain games and GameFi. With its high scalability, lower transaction costs, and faster transaction speed, Mantle is expected to completely change the landscape of GameFi.
Optimistic Rollup networks require users to wait for 7 days to complete the withdrawal of funds from the official website to L1, which may result in a poor user experience. On the other hand, ZK-Rollup networks can process withdrawals immediately but are still in the early stages of development and are often more prone to crashes compared to older L2 networks. Additionally, their costs are higher compared to OP-based systems. However, the Metis team is building a “hybrid” L2 network that allows users to choose between the immediate ZK network or the 7-day waiting period of Optimistic-Rollup.
The complexity of L2 technology may introduce new security vulnerabilities that attackers can exploit. Furthermore, L2 challenges the core principles of decentralization and trustlessness in transaction execution. Although L2 solutions are becoming more popular due to their improved scalability, they often sacrifice decentralization to some extent, as they adopt centralized sequencer nodes for transaction processing, raising concerns about potential censorship or human intervention.
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