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
Liquidation (Lending)
The automated sale of a borrower’s collateral when its value falls below a protocol’s required threshold.
Order Book
A real-time electronic list of buy and sell orders for a digital asset, organized by price level.
Stablecoin (Decentralized)
A decentralized stablecoin is a digital asset on a blockchain, designed to maintain a stable value, typically pegged to a fiat currency like USD, without relying on a central issuer.
Stablecoin and VISA
Visa's pilot program using stablecoins like USDC for prefunding cross-border payments on Visa Direct in 2025.
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.
Ticker
A short, unique alphanumeric code used to represent a specific digital asset on exchanges and platforms, typically derived from the asset’s name.