A Review of Layer 2 Projects: Today and Tomorrow

Along with the advancement of crypto technologies and the finalization of the Ethereum roadmap, the narrative surrounding new public chains is gradually being replaced by Layer 2. L2 projects including Arbitrum, Optimism, and the recent hit BASE have consistently ranked among the top 10 public chains and protocols in terms of TVL. Meanwhile, Layer 2 protocols like zkSync and StarkNet have seen a continued rise in user adoption. 

Cancun Upgrade, an upcoming Ethereum upgrade, is set to further reduce gas fees for Layer 2, which is a major boon for L2 users. Today, we will go through some of the most popular L2 protocols and help L2 beginners better understand all the different L2 protocols out there.

Optimistic Rollup & ZK Rollup

L2 projects address Ethereum’s poor scalability through Rollup solutions, which transfer computation and storage from L1 to L2, compress the data, and then upload the compressed data back to L1. This approach relieves the load on L1 while ensuring security through partial data storage.

In the Rollup process, the most important step is to ensure the correctness of the compressed data uploaded to L1. Rollup solutions are divided into two main categories, ZK Rollup and Optimistic Rollup, depending on how this step is carried out. Specifically, ZK Rollup utilizes zero-knowledge proofs to ensure data security, whereas Optimistic Rollup employs fraud proofs.

Both ZK Rollup and Optimistic Rollup have their pros and cons. For instance, ZK Rollup offers more robust security performance but is more technically demanding. As a result, most Optimistic Rollup protocols and mainnets have built a stable user base, while ZK Rollup is still waiting for its breakthrough. Despite that, it’s widely believed in the industry that once the challenges of ZK Rollup are overcome, it is more likely to become a long-term trend in the world of L2 protocols.

Arbitrum: The No.1 L2 Protocol by TVL

Arbitrum is now the No.1 L2 protocol by TVL, capturing 55% of the market share. The project ranks fourth among all protocols, including L1 protocols, following Ethereum, Tron, and BSC. This success is largely attributed to its thriving on-chain ecosystem. Arbitrum hosts trending native projects like GMX, a decentralized futures trading exchange, and Treasure DAO, a decentralized gaming platform. Arbitrum’s hit applications have fostered a prosperous DeFi and gaming ecosystem.

Arbitrum offers two chains: Arbitrum One and Arbitrum Nova. In particular, Arbitrum One caters to high-frequency games and social networks, while Arbitrum Nova provides enhanced security for DeFi applications. Besides, Arbitrum has been promoting its ecosystem through Odyssey and its token incentive program. 

Meanwhile, Arbitrum also released the L3 development toolkit, Arbitrum Orbit, allowing developers to create L3 solutions on the protocol. So far, Arbitrum has already launched XAI, the first game-specific L3 chain, based on Arbitrum Orbit.

Optimism: A Pioneer with Strong Partnerships

Optimism was one of the earliest L2 protocols to issue tokens, giving it a first-mover advantage. Like Arbitrum, Optimism employs Optimistic Rollup and holds around 25% of the market share, ranking sixth among all protocols, including the L1 ones.

Although Optimism features premium projects like Synthetix, the overall ecosystem still lags behind that of Arbitrum. That being said, Optimism took a different approach. It introduced a set of standardized open-source modules, known as OP Stack, to broaden the L2 sector horizontally, instead of seeking vertical development in L3 as Arbitrum did. 

With OP Stack, developers can easily build L2 projects like Optimism on Ethereum. Right now, several top industry players, including Coinbase and BSC, have partnered with Optimism to deploy L2 solutions based on OP Stack. This strategic move has put Optimism ahead of others in building the superchain, a multi-chain L2 ecosystem envisioned by Optimism.

BASE: Backing by a Top Exchange

BASE, the third-largest player in the L2 sector, is built with OP Stack. The BASE team comes from Coinbase. This globally renowned exchange has provided plenty of resources for the protocol. As such, many projects have chosen BASE, a project with strong backing from Optimism and Coinbase since day one. However, the poor quality of some of the early projects on BASE also led to criticisms among users.

Fortunately, BASE soon saw the emergence of a hit application, friend.tech, attracting a huge number of social users. At the same time, BASE also tapped into Coinbase’s strong influence and massive traffic, which helped it quickly acquire a user base to rival that of Optimism. Besides, the BASE Ecosystem Fund has introduced an investment support program and already completed investments in the first series of projects. Recent data shows that BASE, despite its recent launch, has rapidly become a strong contender in the L2 arena.

In addition to the three projects above, zkSync, the first protocol to implement zkEVM, and Starknet, known for its robust technical capabilities, are also key players in the L2 space. With lower gas fees and higher TPS compared to the L1 mainnet, L2 is destined to become a vital component of the blockchain market. With CoinEx Wallet, users can manage assets across multiple Layer 2 protocols, including Arbitrum, Optimism, and BASE, and access the wallet’s DApp browser.

Download CoinEx Wallet now to try out more Web3 and blockchain applications at https://wallet.coinex.com/download.