Layer 2 solutions are a set of protocols that run on top of the Ethereum blockchain. These protocols allow for more functionality and improved efficiency to be added to Ethereum as well as other blockchains.
The main problem facing Ethereum right now is its slow and expensive transactions. Layer 2 Solutions could help solve this issue by providing a faster, cheaper alternative for transactions without sacrificing security or decentralization.
Layer 2 technologies are an emerging trend in blockchain development. They are designed to run on top of the main blockchain platform and allow for quicker processing, increased scalability, and decentralization.
There are divergent opinions on how Layer 2 solutions to Ethereum will play out. Some believe that Layer 2 solutions will cause the main blockchain to die off and be replaced by other, more scalable solutions such as Dfinity.
The recent progress in Layer 2 scaling solutions for Ethereum and the current state of Layer 1 solutions is a reflection of the rapid changes in business models, technology, and customer expectations.
Some of the benefits of Layer 2 solutions include:
1. Eliminating the need for trusted third parties such as miners and block explorers;
2. Enabling faster off-chain transactions;
3. Better scalability when compared to on-chain transactions;
4. Eliminating transaction fees as they are paid by users in their own tokens;
5. Forwarding transactions around the world without a prohibitive cost and waiting times;
6. Providing an alternative to centralized exchanges which are vulnerable to hacks and government interference.
Top 3 Layer 2 Solutions
The three most popular Layer 2 Solutions For Ethereum include Polygon, Loopring, and Immutable X.
Polygon is unquestionably the earliest of these. This is the only Layer 2 project to make it into the top fifteen most valuable projects in terms of market capitalization.
The MATIC token presently has a market valuation of over $17 billion, putting it ahead of CRO, Algorand, and Litecoin.
It is also the world’s most extensive Ethereum Layer 2 project. In 2021, its popularity was expected to skyrocket.
MATIC, Polygon’s native token, has surged in value by 13,600% in the last year. Particularly at the start of the year, it jumped from $0.018 to $2.45 in just over four months.
To grow and lower high transaction costs, Ethereum currently requires Layer 2 solutions.
Polygon’s goal is to achieve this. Currently, an increasing number of developers are opting to adopt its technologies.
Aave, Curve Finance, and QuickSwap have all been used. There are currently more than 130 DeFi protocols based using Polygon, and they have a total TVL of more than $4 billion.
Loopring is the second Layer 2 design that should be highlighted. Because it is primarily used to administer a decentralized exchange, this platform differs from Polygon.
In reality, Loopring’s purpose is to allow users to swap cryptocurrency assets without going through the Ethereum blockchain in a decentralized manner. This avoids the high fees and slow performance associated with DEXs that run on the Ethereum blockchain.
LRC is Loopring’s own native token. Its current market capitalization is approximately 2.5 billion dollars.
Its price has climbed by 1000 percent throughout 2021. The LRC jumped from $0.4 to $3.2 in only two weeks in November.
Immutable X is also worth mentioning. It is a project centered on the realm of NFT, which has lately risen to prominence as the most popular crypto subsector.
Immutable X is Ethereum’s largest Layer 2 NFT platform. Its success can be attributed to this factor.
It is primarily used to allow Ethereum NFT holders to move their coins from one wallet to another. They pay nearly no costs with Immutable X, and transactions are almost immediate.
Immutable X’s native token, IMX, has a little over $1 billion market valuation.
On the other hand, the token has only been around for a short time. As a result, it did not gain from the recent significant rises.
Layer 2 Solutions will be the future of blockchain technology because they are going to provide developers with an easier way to write these smart contracts. Layer 2 Solutions could also help companies with scaling and speed in situations where multiple blockchains are involved.