Layer-2 Solutions: Why Are They Crucial for Ethereum?

• According to a famous on-chain analyst, the scaling factor of L2 rollups has increased by 5.25 times compared to less than a year ago.
• According to L2Beat, scaling solutions processed an average of 45 transactions per second at the time of publication. In comparison, the average transaction speed on Ethereum was 10.5.
• The largest scaling solution, Arbitrum, made token swaps possible at a cost of $0.12, which is equivalent to 3.8% of the rates on Ethereum.

Layer 2 (L2) scaling solutions are rapidly filling the scalability gaps in the Ethereum base layer: Why is L2 so important?

Layer-2 is Rapidly Developing on Ethereum

Slowly but surely, Layer 2 (L2) scaling solutions have started to fill the scalability gaps in the Ethereum base layer. According to a famous on-chain analyst, the scaling factor of L2 rollups has increased by 5.25 times compared to less than a year ago. Simply put, the total number of transactions on L2s was more than five times that of Ethereum.

As known, scaling solutions emerged as a necessity to address the capacity limitations on the Ethereum mainnet caused by the overlapping surge in network traffic. Through processing low-value transactions in bulk and submitting proofs to L1, L2 solutions have become the backbone of the large Ethereum ecosystem.

According to L2Beat, scaling solutions processed an average of 45 transactions per second at the time of publication. In comparison, the average transaction speed on Ethereum was 10.5. In addition to better transaction capacity, L2s have also emerged to process transactions for users at cheaper alternatives.

Data from L2Fees showed that almost all scaling networks managed to significantly reduce transaction fees. For example, Arbitrum, the largest scaling solution in terms of value locked, made token swaps possible at a cost of $0.12, which is equivalent to 3.8% of the rates on Ethereum.

Sharp Growth in TVL

The strengths of L2 networks have also attracted the attention of DeFi investors and developers. Since the beginning of 2023, the total value locked (TVL) in Ethereum scaling solutions has more than doubled, reaching $9.58 billion at the time of writing. For comparison, this accounted for 22% of the total locked funds on the Ethereum mainnet.

In 2023, the L2 scene has become increasingly crowded with the emergence of new networks one after another. Base, the newest participant in this vibrant world, has been a hot topic since its launch.

In the future, the growth of L2s will revolve around the upcoming EIP-4844 update. This significant update, aiming to achieve a 10-100x cost savings from the base layer, could prepare the infrastructure for Ethereum’s mass adoption.