What Is Layer 2 (L2)?
Layer 2 (L2) refers to scaling solutions built on top of a base blockchain (Layer 1, like Ethereum). L2s batch many transactions together and settle them periodically to L1, dramatically reducing per-transaction fees while inheriting L1's security guarantees.
The leading Ethereum L2s — Arbitrum, Optimism, Base, zkSync — process transactions at $0.01-0.50 each vs $5-50+ on Ethereum mainnet during congestion. Different L2 designs (optimistic rollups vs zero-knowledge rollups) make different tradeoffs around finality time and proof complexity.
L2s have absorbed the majority of DeFi activity that was priced out of Ethereum mainnet. They're especially important for small transactions, frequent trading, and consumer apps where gas fees would otherwise dominate user experience. Bridges between L1 and L2 add their own risks — a bridge hack is one of the most common L2-related loss vectors.
Related terms
- Gas Fee — Transaction fee paid to network validators to include your transaction on a blockchain.
- Smart Contract — Self-executing program on a blockchain that runs when predetermined conditions are met.
- DeFi (Decentralized Finance) — Financial applications built on blockchain without traditional intermediaries.
- DEX (Decentralized Exchange) — Cryptocurrency exchange that runs on smart contracts without a central operator.