Blockchain protocols work like regular computer networks, they have different tolerance levels. There’s a limit to the traffic they can handle before getting congested. So, this leads to increased transaction costs. You can find this situation, particularly with Ethereum’s blockchain.
To address this, layer 2 platforms were launched. These L2 scalability options function as lanes that connect to Ethereum’s highway, unloading traffic to make it efficient and cheap. Let’s find out more about Layer 2 blockchains. These layer 2 platforms provide a series of benefits. For example, they help reduce transaction costs and also allow developers to create better applications.
Should I invest in Layer 2 projects?
Ethereum is the second-biggest cryptocurrency by market cap, coming behind Bitcoin. But, there’s been a lot of growth on Ethereum in recent years, fueled by the rise of trends like decentralized finance (DeFi).
Many believe Ethereum will someday surpass Bitcoin, and if that were to happen, investing in Ethereum Layer 2 projects would be a smart move. These layers help Ethereum with scalability, so any growth on Ethereum ultimately affects them. We’ve already seen this during the merge. Layer 2 had a fair share of the Ethereum buzz.
With the rise of transaction on Layer 2 roll-up solutions, here are a few things we should know
LAYER 2
What is Layer 2?
Layer 2 are roll-up solutions on Ethereum blockchain meant to leverage on the security lethargy of Ethereum to deliver fast transaction. They achieve… pic.twitter.com/fGE6gtSDB7— Bashir Muhammed (@BashirJasper) May 13, 2023
Now, let’s show you three top-layer 2 projects to consider if you’re thinking of investing.
1) Polygon
Polygon is arguably the most popular layer 2 solution for Ethereum. It can process up to 65,000 transactions per second (TPS), which puts it on pace with Visa. Fast transactions and cheap fees are two of the significant advantages that Polygon provides.
What happens when a transaction is submitted on Polygon zkEVM Mainnet Beta?
At a high level:
1⃣ A transaction is sequenced into a batch w/ other transactions;
2⃣ Data of the batch is broadcast to L2 nodes
3⃣ Data of the batch is made available to Ethereum; and then— Polygon (@0xPolygon) May 11, 2023
You can imagine Polygon as a train on a track with other trains. But the difference is that it makes very few stops and moves faster. So more people want to get on it because of these features.
For example, a developer can build and connect Ethereum-compatible blockchains using the Polygon framework. Additionally, it is simple to implement thanks to Polygon’s one-click functionality and modules for creating unique blockchain networks.
What is MATIC?
MATIC is Polygon’s native token. Polygon chose to retain MATIC for its sticker after it rebranded to Polygon. Here are some of the roles that MATIC plays:
- Governance: MATIC holders can vote on changes to the blockchain.
- Staking: Token holders can stake their crypto to earn profits.
- Fees: Users pay network fees on Polygon with MATIC.
The developers release MATIC tokens on a monthly basis. However, the token has a maximum supply of 10 billion tokens. Currently, it’s circulating supply is 9.25 billion (92%, are in circulation). In addition, Polygon has burned more than 9.6 million MATIC tokens or taken them off circulation.
In April, the daily avg gas on Polygon #zkEVM was 7X cheaper than Ethereum Mainnet, even during periods of peak network activity.
Want to know which growth metrics were +300% this month?
Follow the thread👇🏽 pic.twitter.com/9A3R4I9yiA
— Polygon (@0xPolygon) April 27, 2023
According to DeFillama, Polygon offers +350 decentralized applications, including NFT marketplaces, lending and borrowing, gambling, and blockchain gaming. MATIC will rise in value as more people use these applications.
2) Arbitrum
Arbitrum is another standout among the list of popular Ethereum Layer 2 scaling options. Arbitrum was created by Off-chain Labs with characteristics that allow for seamless interoperability with Ethereum, making it simpler for Solidity developers to cross-compile their smart contracts.
Arbitrum’s smart contracts validate using optimistic rollups. The platform’s focus is on EVM compatibility, and this makes it unique. So, DApp developers can create their applications on the Arbitrum mainnet without having to learn a new programming language.
5/5 We welcome all the new projects joining our ecosystem 💙🧡@ProhibitionArt (NFT Platform)@OlympusDAO (Bridge)@rentfun_io (NFT Rental) @MantaNetwork (Privacy)@ParticleNtwrk (Infrastructure) @parsiq_net (API)
Have a great weekend Arbinauts & stay tuned for the next one!
— Arbitrum (💙,🧡) (@arbitrum) May 12, 2023
Arbitrum has an impressive transaction speed of 40,000 transactions per second (TPS). It provides this service at a price of no more than two cents. This way, it alleviates Ethereum’s congestion with cheap fees and fast transactions.
Arbitrum recently announced the launch of its governance token, the ARB token, with an initial supply of 10 billion tokens. ARB currently trades at $1.15. It has a market cap of $1,4 billion and a circulating supply of 1,275,000,000 ARB coins.
The first generative art marketplace is coming to Arbitrum.🎨
We're excited to see @prohibitionart bring @artblocksengine to the ecosystem. 💙🧡 https://t.co/pPJH9tDdpV
— Arbitrum (💙,🧡) (@arbitrum) May 11, 2023
Arbitrum has huge potential, and early adopters have a lot to gain. The project already competes with platforms like Polygon and Optimism in terms of TVL. TVL shows the amount of value locked within a platform.
3) Stacks
Our final Layer 2 doesn’t exactly concern Ethereum. Instead, it focuses on Ethereum’s rival, Bitcoin. Stacks is a layer 2 platform that unlocks the full potential of Bitcoin.
Stack’s token, STX, has been in high demand since the start of the year as trade volumes between Stacks-based NFTs have risen as the growth of Bitcoin Ordinals has brought exposure to Bitcoin NFTs, which exist on Stacks as layer-2 NFTs.
Welcome to #Stacks 💜 👇
⭐ A #Bitcoin layer for smart contracts
⭐ Enabling smart contracts and decentralized applications to trustlessly use $BTC as an asset
⭐ Settling transactions on the #Bitcoin blockchain
⭐ Unlocking #Bitcoin Decentralized Finance, NFTs, BNS, and more pic.twitter.com/VoHnypE1dx— stacks.btc (@Stacks) February 21, 2023
Stacks use self-executing smart contracts to improve the functionality of the Bitcoin blockchain. This means it can provide Bitcoin with trends like decentralized finance without changing Bitcoin’s core features.
Stacks’ STX token has seen good days in recent months. And this growth is all thanks to the growing interest in creating Bitcoin. Also, the team claims that users have minted more than 650,000 Bitcoin NFTs on Stacks Layer 2.
Last week, Stacks Builders showed what it means to build on #Bitcoin
⭐ @ALEXLabBTC launching Bridge, connecting Binance Chain to Stacks, & BRC-20 DEX
⭐ NFT/Ordinal Marketplace @trygamma launched descending price auctions
⭐ @LiquidiumFi launch date Ordinal DeFiLearn more 👇
— stacks.btc (@Stacks) May 16, 2023
Data from DeFiLlama shows that the Stacks Network’s TVL has increased over the past few months, rising from $8 million in February to $35 million in mid-March. It currently stands at $33.27 million.
Conclusion
We have shown you three good Layer 2 projects for your portfolio. Crypto investments are often volatile. This means the numbers can change. However, these projects have good foundations. So they have long-term potential.
Matic, ARB, and STX are available on a few exchanges, including Bybit. Did you know that Bybit is giving out up to $30,000 in bonuses & together with a brand-new iPhone 14? Just click this link to find out more. If you already have a Bybit account (created without an affiliate link) you can still join by clicking this link.
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