Layer 2
Secondary protocols built atop Layer 1 blockchains to enhance scalability by offloading computations while inheriting security.
What is Layer 2?
Layer 2 (L2) solutions process transactions off-chain, batching them for L1 settlement—e.g., Lightning Network on Bitcoin enables 1 million TPS at <1 satoshi fees for micropayments. Ethereum L2s like Arbitrum handle 40,000 TPS, reducing fees to $0.01 from L1’s $1+.
Layer 2 types include rollups (ZK/Optimistic), state channels (Raiden), and sidechains (Polygon), with $40 billion TVL in 2025. ZK-rollups use proofs for instant finality, while Optimistic assume validity with 7-day challenges.
L2s address L1 bottlenecks—Ethereum’s 15 TPS—boosting adoption, though interoperability via bridges risks exploits ($2 billion lost 2022-2024), fostering 80% of new dApps.
Related Terms
Financial Disintermediation
The shift of funds from banks to alternative channels, potentially reducing bank lending.
Rug Pull
A scam in the digital asset space where developers or promoters of a project abandon it after raising funds, leaving investors with worthless tokens or assets.
Mining and Miner
Mining is the process of validating transactions and adding new blocks to a blockchain by solving computational puzzles, and a miner is who performs this task to earn rewards.
OP Stack and OP Superchain
The modular, open-source framework for building Ethereum Layer 2 chains, forming the interconnected Superchain ecosystem.
Liquid Staking
A staking mechanism on Ethereum where users receive derivative tokens representing their staked ETH, allowing them to use these tokens in DeFi activities while earning staking rewards.
Market Maker (order book)
An entity providing liquidity by placing buy and sell limit orders in the order book.