As of September 25, 2023, Grayscale reports that the top Ethereum Layer 2 solutions, including Arbitrum, Optimism, and BASE, have outperformed well-known Ethereum rival Layer 1 blockchains, such as Solana and Avalanche. This change is significant because it highlights the growing importance of Layer 2 solutions in boosting the scalability and transactional capacity of the Ethereum network.
The Backbone of Blockchain: Understanding Layer 1 and Layer 2 Solutions
A blockchain network’s layer 1 is its fundamental protocol layer. It includes all of the basic guidelines the network governs, such as consensus methods, transaction validation procedures, and the process of creating new blocks. A blockchain’s layer 1 solutions, which include well-known networks like Bitcoin, Ethereum, Solana, and Avalanche, are essential to its operation. But as interest in blockchain networks increases, scalability problems emerge, frequently causing transaction times to lag and costs to soar.
In order to address scalability difficulties, layer 2 solutions—secondary protocols built on top of layer 1 blockchains—offload transaction processing from the primary chain. These technologies offer quicker transactions and cheaper fees while maintaining the Layer 1 blockchain’s security guarantees. Arbitrum, Optimism, and BASE are a few Layer 2 solutions that run on top of the Ethereum network.
Layer 2 blockchains function by processing transactions from decentralized apps (dApps) and then “batching” them together. This batch of transactions is then compressed and delivered back to the main network for final settlement. This method enhances a major highway by acting as an auxiliary route, which optimizes the transaction process.
By operating as described, Layer 2s makes the Ethereum ecosystem more usable and transaction-capable while still using the network’s core security. As the Ethereum network grows, a large proportion of activity can move to more cost-effective Layer 2 alternatives. This move, in turn, returns value to Ethereum, strengthening its position in the blockchain industry.
Five projects, Optimism, Arbitrum, BASE, Starknet, and zkSync, stand out among the 31 current Ethereum Layer 2 projects identified by L2Beat for their exceptional success in fundamental metrics. These top Layer 2s by TVL are illustrated in a post published by Grayscale on September 27, 2023. In addition, BASE, Starknet, and zkSync have not yet launched tokens, but Arbitrum and Optimism have. The market cap for each individual coin is indicated by the market caps column in the chart.
L2BEAT statistics show that as of October 4, 2023, there were $$10.82 billion in total funds locked on Ethereum converted to USD, which is a 4.84% rise from the previous week. The TVL across several projects shows the increasing adoption of Layer 2 technologies. For instance, OP Mainnet has a TVL of $2.72 billion, followed by zkSync Era with $471 million, and Arbitrum One with $6.03 billion.
The rise of Layer 2s like Arbitrum, Optimism, and BASE in terms of TVL is evidence of their potential contribution to the Ethereum ecosystem. These Layer 2s have demonstrated their potential in enabling a more scalable and affordable environment for dApps by outperforming well-known Layer 1s like Solana and Avalanche, greatly advancing the blockchain technology landscape.