Top 10 Layer-2 Crypto Projects to Watch in 2024

Layer-2 protocols enhance transaction speed and efficiency beyond the main chain through innovative technologies like rollups, plasma chains, and sidechains. Discover how these leading Layer-2 networks offer a more scalable and accessible blockchain experience.

Blockchain technology has evolved significantly from Bitcoin's 2008 debut as a decentralized payment network to its current role in powering diverse applications like DeFi, GameFi, NFTs, the metaverse, and Web3. As blockchain ventures into mainstream adoption, the challenge of scalability becomes crucial.

While foundational Layer-1 networks like Ethereum and Bitcoin are pivotal, they face throughput limitations, significantly lagging behind traditional systems in transaction processing speed. For context, Bitcoin's network processes approximately 7 transactions per second (TPS), and Ethereum's Layer-1 manages around 15 TPS as of 2023, significantly lower than traditional systems like Visa, which can handle about 1,700 TPS.

This guide delves into Layer-2 solutions, the innovative answer to the blockchain trilemma of scalability, security, and decentralization, by exploring how these secondary protocols enhance existing blockchains. Discover the most promising Layer-2 projects of 2024 and their impact on the future of blockchain.

A Layer-2 blockchain represents a collection of scaling solutions crucial for enhancing the performance and scalability of Layer-1 blockchains, like Ethereum. These layer 2 protocols operate atop the primary blockchain, significantly reducing congestion, lowering transaction costs, and boosting throughput.

Imagine a highway where traffic flows smoothly, transactions zip through at lightning speed, and fees are so low they're practically invisible. That's the world of Layer-2 protocols in crypto—the express lanes built atop Layer-1 blockchains like Ethereum to supercharge performance and scalability.

At the core of Layer-2 networks is the principle of off-chain transaction processing, culminating in a consolidated summary transaction on the main chain. This approach significantly eases network congestion, reduces processing time, and cuts down on transaction costs.

Layer-2 protocols act as a dedicated traffic management system, diverting transactions off the main blockchain and processing them separately. This offloading dramatically reduces congestion on the main blockchain, leading to faster transactions, lower fees, and increased throughput.

Key Advantages of Layer-2 Scaling Solutions

Unlocking dApps and DeFi Growth: Layer-2 protocols make decentralized applications (dApps) and DeFi platforms not only more affordable but also faster and smoother to use, opening up a world of possibilities.
Powering Profitability for Users and Traders: Traders and investors reap the rewards of significantly reduced transaction fees, especially in DeFi activities like yield farming and trading, which directly boosts their bottom line.
Paving the Way for Mass Adoption: Layer-2 networks are key catalysts for mainstream blockchain adoption. By making blockchain technology more accessible and user-friendly, layer-2 scaling solutions are driving its expansion into diverse industries beyond finance, from gaming to supply chain management.

Let’s look at blockchain scalability from a vertical perspective. Here's a breakdown of the different layers powering the future of blockchain, from the foundational base to the specialized heights:

Layer-1: The Bedrock of Blockchain

Think of Layer 1 as the main highway—it's the core blockchain itself, like Bitcoin or Ethereum, where fundamental operations like consensus mechanisms, security, and smart contract execution take place.

Challenge: As traffic on this highway grows, it can get congested, leading to slower transaction speeds and higher fees.

Here’s a deep dive into the differences between Layer 1 and Layer 2 blockchains.

Layer 2: The Express Lanes

Layer 2 solutions are the ingenious workarounds that relieve congestion on Layer 1. They're like carpool lanes or overpasses, diverting transactions to secondary networks for processing.

Benefits: This offloading results in speedier transaction processing capabilities, lower transaction fees, and higher scalability.

Layer 3: The Specialized Bridges

Layer 3 networks take it a step further, building specialized bridges atop Layer 2 to enhance efficiency and customization for dApps (decentralized applications). Think of them as intricate flyovers designed for specific tasks like:

Advanced off-chain computations
Seamless dApp interactions
Streamlined cross-chain communication

Layer-2 solutions are engineered to mitigate the scalability challenges of Layer-1 blockchains. In these networks, transactions are processed off-chain or through secondary frameworks, reducing congestion and fees on the main blockchain. Notable layer 2 protocols have gained traction for their efficiency and scalability.

Learn more about Layer 2 vs. Layer 3 scaling solutions.

Choosing the right layer is all about your needs:

Need a solid foundation for your blockchain journey? Stick with Layer 1.
Prioritizing speed and cost-efficiency? Layer 2 is your go-to.
Looking for specialized solutions for complex dApps? Explore the possibilities of Layer 3.

Layer-2 solutions serve as express lanes for transactions that bypass the traffic jams and congestion on Layer-1 blockchain networks. Let's dive into the different types of Layer-2 solutions that are reshaping the blockchain landscape:

Optimistic Rollups: The "Assume Good Faith" Approach

Optimistic Rollups take an optimistic approach to transaction processing, assuming everything is valid unless proven otherwise. This streamlines verification and reduces costs. Think of them as friendly neighborhood watch groups, keeping an eye out for any suspicious activity while letting most transactions flow smoothly.

Key features of Optimistic rollups include:

Faster transactions and lower costs
Balance of efficiency and security
Popular among Ethereum L2 projects

Zero-Knowledge Rollups (zk Rollups): Privacy Champions

Zk Rollups prioritizes privacy and efficiency by bundling transactions into a single proof that conceals individual details. Imagine a master magician who can make a whole deck of cards disappear into a single sleeve—that's zk Rollups in action!

Key features of ZK Rollups include:

Enhanced privacy and scalability
Minimal computational strain on the blockchain
Popular in DeFi and NFT applications

Ethereum Plasma Chains: Specialized Sidechains

Plasma chains act as specialized sidechains linked to the Ethereum mainnet, offering a unique approach to scalability. Think of these Ethereum layer-2 networks as satellite cities connected to the main metropolis, each with its own infrastructure to handle specific tasks.

Key features of plasma chains include:

Significantly faster transactions and lower fees
Distinct approach from rollup-based solutions

Validium: Security and Efficiency in Harmony

Validium strikes a balance between security and efficiency by moving transactions off-chain for validation while ensuring security through cryptographic proofs. It's like having a trusted bouncer at a club, checking IDs off-chain to ensure only legitimate transactions enter the blockchain dance floor.

Key features of Validium layer-2 scaling solutions include:

Enhanced scalability without compromising security
Ideal for applications prioritizing speed and throughput

Layer-2 solutions are crucial for enhancing transaction throughput and efficiency in blockchain networks. We highlight some of the top Layer-2 blockchain protocols that represent the cutting edge in blockchain scalability and efficiency.

1. Arbitrum

Throughput: 2,000-4,000 TPS

TVL: $10.7 billion

Market Cap: $2.37 billion+

Technology: Optimistic Rollup

Arbitrum, built on Optimistic Rollups, boasts a peak throughput of 4,000 TPS, processing transactions up to 10x faster than Ethereum's mainnet and reducing gas costs by up to 95%. As of January 2024, Arbitrum commands over 51% market share among Ethereum Layer-2 networks in terms of TVL.

Arbitrum provides a developer-friendly environment with familiar tools and streamlined deployment processes. It's committed to decentralization and is transitioning towards a community-driven future. Its ecosystem hosts a growing range of DeFi protocols, NFT marketplaces, and gaming platforms.

The native token, ARB, is used for transaction fees, staking, and network governance. Like any L2, Arbitrum's security is anchored to Ethereum mainnet, and its recent launch presents inherent risks compared to more established L2 solutions. However, with a strong development team and active community, Arbitrum is continuously evolving and expanding, positioning itself as a key contender in the L2 race.

2. Optimism

Throughput: 2,000 TPS

TVL: $5.5 billion

Market Cap: $3 billion+

Technology: Optimistic Rollup

Optimism, leveraging Optimistic Rollups, provides Ethereum's security and reliability without its scalability issues. It boasts a peak throughput of 4,000 TPS, processing transactions up to 26x faster than Ethereum's mainnet, and reduces gas costs by up to 90%.

Optimism is committed to becoming a self-governing community and hosts a growing array of DeFi protocols, NFT marketplaces, and DAOs. It offers a developer-friendly environment with familiar tools and a collaborative community.

The native token, OP, is used for transaction fees, staking, and network governance. Optimism's reliance on Ethereum mainnet carries inherent risks, and its decentralization process requires constant monitoring. However, with a talented team and active community, Optimism is continuously refining its technology and expanding its ecosystem, positioning itself as a leader in the L2 space.

3. Lightning Network

Throughput: Up to 1 million TPS

TVL: $198 million+

Market Cap: NA

Technology: Bi-directional payment channels, Smart contracts

The Lightning Network is paving the way for a faster, cheaper, and more accessible Bitcoin for everyone. The Lightning Network operates off-chain, enabling instant, low-cost Bitcoin microtransactions while leveraging Bitcoin's underlying security. This Bitcoin layer-2 scaling solution offers near-instant transaction confirmation, making it ideal for everyday use and real-time applications. Transaction fees are significantly reduced, and scalability issues are addressed by operating off-chain.

However, it presents challenges such as technical complexity for newcomers, limited adoption compared to the mainnet, and potential security vulnerabilities. Users can leverage the network for micropayments, everyday transactions, and accessing various dApps. It's important to weigh the technical complexity, adoption rate, and potential security risks against the benefits of instant, cheap transactions, and the network's future potential.

The Lightning Network is a Layer-2 scaling solution for Bitcoin that utilizes bi-directional payment channels and smart contracts to enable faster and cheaper off-chain transactions. It leverages the power of the Bitcoin blockchain while conducting transactions off-chain, allowing for rapid microtransactions and improved scalability.

4. Polygon

Throughput: 65,000 TPS

TVL: $4 billion

Market Cap: $7.5 billion+

Technology: zk Rollup

Polygon is a multichain ecosystem offering several Layer-2 solutions to scale Ethereum, facilitating faster transactions and lower gas fees. It employs a diverse set of technologies, including zkRollups for high-speed, privacy-focused transactions and Proof-of-Stake consensus mechanisms for sidechains like Mumbai. The native token, MATIC, is used for gas fees, staking, and network governance.

With a throughput exceeding 65,000 TPS, Polygon significantly outperforms Ethereum's mainnet. Its low transaction fees make it ideal for DeFi applications, NFT marketplaces, and regular blockchain interactions.

Polygon also provides seamless connectivity with Ethereum and other chains like BNB Chain. It hosts a thriving DeFi scene with leading protocols like Aave, SushiSwap, and Curve and is popular among NFT enthusiasts, with major marketplaces like OpenSea and Rarible integrating its solutions. Its developer-friendly tools attract innovative projects and foster a vibrant community. It holds one of the highest DeFi TVLs among Layer-2 networks, exceeding $845 million as of January 2024.

5. Base - Coinbase Layer 2 Network

Throughput: 2,000 TPS

TVL: $729 million

Market Cap: NA

Technology: Optimistic Rollup

Coinbase's Base is a layer-2 protocol designed to enhance Ethereum's potential by increasing transaction speed and reducing fees. Utilizing the OP Stack and Optimistic Rollups, Base targets a throughput of 2,000 TPS, promising near-instant transactions. It also aims to cut Ethereum's gas costs by up to 95%, making it more affordable for DeFi and NFT activities.

Base leverages Ethereum's security while processing transactions off-chain, ensuring asset safety. It's developer-friendly, offering familiar tools and a streamlined deployment process. Backed by Coinbase, Base benefits from its security expertise and large user base.

Base is still evolving, but its focus on speed, affordability, and developer friendliness makes it a Layer-2 solution worth watching closely. Base could become a crucial bridge between Ethereum's present and its scalable future as it builds out its ecosystem and decentralizes.

6. Dymension

Throughput: 20,000 TPS

TVL: 10.42 million DYM

Market Cap: NA

Technology: RollApps

Dymension is a modular blockchain ecosystem consisting of specialized blockchains, or RollApps, built on a secure settlement hub. The first layer-2 network in the Cosmos ecosystem, Dymension, separates functionalities like consensus, execution, and data availability, allowing each RollApp to optimize its performance and security. Dymension uses enshrined rollups, embedding their validity permanently in the Dymension Hub and enhancing trust across the network. It also supports interoperability with other blockchains via the Inter-Blockchain Communication (IBC) protocol.

Developers can tailor RollApps to specific needs, choosing appropriate consensus mechanisms, smart contracts, and data solutions. The combination of enshrined rollups and the Dymension Hub's security ensures a robust and transparent ecosystem. Dymension's modular design allows for scaling individual RollApps without impacting the entire network.

The native token DYM is used for gas fees, governance, and staking. Developers can build and deploy RollApps, while users can participate in DeFi protocols, NFT marketplaces, and other dApps within the Dymension ecosystem. However, Dymension is still under development, and its modularity and diverse functionalities can be complex for newcomers.

7. Coti

Throughput: 100,000 TPS

TVL: $28.98 million

Market Cap: $72.1 million

Technology: zk Rollup

Coti, initially a Layer-2 scaling solution for Cardano, is transitioning to become a privacy-centric Layer-2 network for Ethereum. This shift aims to provide faster, more affordable transactions with Ethereum's security and interoperability while maintaining privacy. The COTI token is primarily used for transaction fees, staking, governance, merchant processing, and as part of the trust scoring mechanism in the Coti network. Existing COTI tokens will be migrated to the new L2 network on Ethereum.

Coti is moving from a Directed Acyclic Graph (DAG) consensus to an Ethereum Virtual Machine (EVM)-compatible architecture. Its privacy feature, garbled circuits, will remain central in its Ethereum version, ensuring transaction data confidentiality. Leveraging Ethereum Layer-2 technology, Coti aims to significantly increase transaction throughput.

This change offers opportunities for developers familiar with Ethereum tools to build privacy-focused dApps on Coti. Its integration with Ethereum and other blockchains via the Inter-Blockchain Communication (IBC) protocol expands Coti's reach. However, this transition requires careful adaptation and development efforts.

8. Manta Network

Throughput: 4,000 TPS

TVL: $951 million

Market Cap: $565 million

Technology: zk Rollup

Manta Network is a privacy-focused ecosystem for Ethereum, offering anonymous transactions and confidential smart contracts. It comprises two modules: Manta Pacific, an EVM-compatible Layer-2 for efficient transactions, and Manta Atlantic, which handles private identity management using zkSBTs. Zero-knowledge cryptography is central to Manta, ensuring transaction validity without compromising privacy. Additionally, Manta provides Universal Circuits to help developers easily create privacy-centric DeFi apps.

Beyond privacy, Manta Network promises high scalability with 4,000 TPS on Manta Pacific, a developer-friendly environment due to its EVM compatibility, and strong interoperability with Ethereum and other blockchains via bridges and IBC.

The native token MANTA fuels the network and is used for gas fees, staking, and participating in network governance. Manta Network has shot to fame shortly since its launch, overtaking Base to become the third largest Ethereum layer-2 network by TVL as of January 2024.

9. Starknet

Throughput: 2,000-4,000 TPS

TVL: $164 million

Market Cap: NA

Technology: zk Rollup

Starknet uses STARK proofs, a type of zero-knowledge proof, to validate transactions off-chain, offering unmatched speed with a theoretical throughput of millions of transactions per second (TPS). It significantly reduces transaction fees, making everyday blockchain interactions nearly cost-free.

Starknet provides a developer-friendly environment with powerful tools and a familiar programming language, Cairo. It's committed to becoming a fully decentralized, community-driven network and hosts a rapidly growing ecosystem of innovative dApps across DeFi, NFTs, gaming, and more.

However, Starknet's cryptographic nature can be complex for newcomers, its user base is relatively small compared to established L2s, and it's still under continuous development, requiring users to adapt to upgrades and potential changes.

10. Immutable X (IMX)

Throughput: 9,000 TPS+

TVL: $169 million

Market Cap: $2.51 billion+

Technology: Validium

Immutable X is a specialized L2 network designed for gaming, offering scalability, affordability, and security to enhance the Web3 experience for players and developers. It leverages ZK-Rollups to achieve over 4,000 TPS with near-instant transactions and minimal fees while maintaining strong security through its Ethereum mainnet foundation. The native token IMX fuels the network and is used for fees, staking, and participating in governance.

Immutable X promises a smooth experience for gamers with quick transactions, true NFT ownership, and game interoperability. Developers benefit from low costs, easy-to-use tools, and a supportive community within a thriving ecosystem of games, marketplaces, and decentralized applications.

With a high throughput capacity, ImmutableX supports efficient NFT minting, trading, and transfer, holding a notable TVL and market share among Ethereum Layer-2 blockchains.

Ethereum 2.0, a transformative upgrade to the Ethereum blockchain, is setting the stage for a significant evolution in blockchain technology. Its primary objectives are to boost speed, efficiency, and scalability. As of January 2024, the integration of Danksharding, particularly Proto-Danksharding, in the upcoming phase of Ethereum 2.0 is expected to elevate Ethereum’s throughput to an impressive 100,000 TPS.

Check out the top Ethereum Layer-2 protocols.

This advancement holds immense implications for Layer-2 networks:

Driving Layer-2 Scalability and Efficiency: Forget slow, expensive transactions. Danksharding optimizes Layer-2 efficiency, making them a cost-effective haven for your blockchain business. This translates to a data-gobbling, transaction-munching network that can handle anything you throw at it, all without breaking the bank.
Slashing Transaction Fees on L2 Networks: Proto-Danksharding, the first phase of this magic, slashes transaction fees on Layer-2 networks. It's like finding a hidden stash of free gas money! This affordability boost opens the door for everyone, from seasoned DeFi whales to curious blockchain newbies, to experience the power of Layer-2 solutions.
Seamless Synergy Between L1 Ethereum and L2s: Proto-Danksharding will improve Ethereum's support for Layer-2 rollups and service rollup sequencers. Think smoother integration, tighter communication, and a frictionless user experience. Imagine zipping through transactions without ever leaving the comfort of your favorite Layer-2 app.
Enhanced User Experience: Faster confirmations, less network congestion, and meager gas fees – that's the Danksharding promise. Users can expect quicker confirmation times, reduced network congestion, and lower gas fees, making Ethereum and Layer-2 solutions more user-friendly.

Ethereum 2.0 doesn't make Layer-2 solutions redundant; instead, it fosters a symbiotic relationship where Ethereum 2.0 and Layer-2 networks work in tandem to provide a more efficient and scalable blockchain ecosystem. This complementary relationship is pivotal for the future demands of decentralized applications (dApps) and decentralized finance (DeFi).

Layer-2 blockchain protocols have emerged as a cornerstone in enhancing blockchain ecosystems, playing a critical role in making transactions faster, more cost-effective, and scalable. By addressing the limitations of Layer-1 protocols, Layer-2 networks signify a transformative phase in the evolution of blockchain technology.

In 2024, Layer-2 isn't just a trend; it's a tectonic shift. From booming Ethereum L2 projects to innovative Bitcoin scaling solutions, these networks are shaping the future of the crypto industry. They're paving the way for wider adoption, unlocking new opportunities, and proving that blockchain can be fast, affordable, and accessible for everyone.