Performance and Outlook of Layer 2 Blockchains
“Layer 2” (L2) blockchains are rapidly transforming the efficiency and structure of the cryptocurrency world. By significantly reducing transaction fees and increasing transaction speeds, these technologies have become the new engines of the blockchain ecosystem. From Bitcoin to Ethereum, Layer 2 solutions not only address scalability issues but also expand the innovation and user base of these foundational crypto projects by attracting millions of new users. This article follows a comprehensive Binance report to review the status of Layer 2 blockchains in 2024.
Table of Contents
Overview of the Layer 2 Blockchain Market
Although base blockchains like Bitcoin’s main network and Ethereum have revolutionized technology and finance, they face scalability challenges. This is where Layer 2 blockchains emerge as a solution by creating secondary networks on the main blockchain. These projects significantly boost network speed and efficiency while reducing costs.
The upward trend of these Layer 2 projects, which began in 2023, continues robustly. The Total Value Locked (TVL) in Layer 2 networks has reached $43 billion, reflecting a 90% increase in the first half of the year. This growth followed Ethereum’s release of the 4844EIP update and the “Dencun” upgrade, which drastically reduced rollup costs. Additionally, this update decreased transaction fees in Layer 2 projects by 96.8%.
In 2024, the concept of blockchain modularity—defined as “the ability to break down a blockchain system into independent, interchangeable components”—has become significantly important, marking a foundational transformation in the blockchain industry. Layer 2 networks have played a critical role in maintaining Ethereum’s position and the blockchain ecosystem in general. The number of daily active addresses on Ethereum and its Layer 2 networks has reached approximately 2.1 million, equaling the leading blockchain, Tron, in this metric and surpassing Solana’s 1.6 million daily active addresses.
Rollup Technology in Ethereum Layer 2 Networks
Rollups are a type of smart contract on Ethereum that process transactions in large batches and send the final results to the main chain. These tools help network scalability by offloading computational operations to a side chain. Generally, there are two main types of rollups:
Optimistic Rollups
Examples: Optimism, Arbitrum
Zero-Knowledge Rollups (zk-Rollups)
Examples: StarkNet, Polygon zkEVM
Both Optimistic and zk-Rollups are designed as Layer 2 scaling solutions for Ethereum. Optimistic rollups assume that all transactions are valid unless proven otherwise. In contrast, the zero-knowledge method operates under the principle that all transactions are invalid unless their validity is conclusively proven. Each of these methods has its unique features. Optimistic rollups offer faster transaction processing, whereas zero-knowledge rollups have greater potential in privacy and security.
“Cash is devaluing in real terms, and I see crypto as an alternative to that. Cash, which most investors consider the safest investment, is, in my opinion, the worst investment.”
— Ray Dalio, U.S. financial expert and investor
Competition in Ethereum Layer 2 Networks
Competition among Ethereum Layer 2 blockchains is significantly intensifying. The launch of the new Layer 2 network Blast in February 2024, along with the rapid growth of Arbitrum and Base, has greatly impacted the market for these innovations. Although zk-Rollups, especially after the launch of the zk Sync Era network in March 2023, had gradually gained market share before Blast’s launch, the growth of Arbitrum and Base, along with the introduction of Blast, ensured that Optimistic rollups retained their market dominance in Ethereum Layer 2 networks.
As shown in Table 1, Optimistic rollups dominate the market, holding approximately 80% of TVL.
| Network Name | Type | Market Share (%) | Max TPS (Transactions Per Second) – Daily | TVL (Billion USD) |
|---|---|---|---|---|
| Arbitrum One | Optimistic | 39.25 | 40.55 (Jun 2024) | 16.96 |
| Base | Optimistic | 17.20 | 42.15 (Jun 2024) | 7.43 |
| OP Mainnet | Optimistic | 14.81 | 11.29 (Mar 2024) | 6.40 |
| Blast | Optimistic | 6.72 | 12.87 (Jun 2024) | 2.90 |
| zkSync Era | Zero-Knowledge | 3.07 | 25.75 (Feb 2024) | 1.32 |
| Linea | Zero-Knowledge | 2.99 | 55.70 (Mar 2024) | 1.29 |
| Mantle | Optimized | 2.88 | 8.65 (Jun 2024) | 1.24 |
| Scroll | Zero-Knowledge | 2.22 | 6.50 (May 2024) | 0.96 |
| StarkNet | Zero-Knowledge | 1.71 | 12.39 (Feb 2024) | 0.74 |
| Manta Pacific | Optimized | 1.49 | 1.37 (Mar 2024) | 0.65 |
| Mode Network | Optimistic | 1.33 | 6.03 (May 2024) | 0.57 |
| Metis Andromeda | Optimized | 0.93 | 9.37 (Jan 2024) | 0.40 |
| dYdX v3 | Zero-Knowledge | 0.93 | 11.45 (Feb 2024) | 0.30 |
| Taiko | Zero-Knowledge | 0.36 | 25.38 (Jun 2024) | 0.15 |
| ImmutableX | Validium | 0.32 | 7.36 (Mar 2024) | 0.14 |
TPS (Transactions Per Second): This number represents the network’s speed in processing transactions. Note that since TPS data is continuously changing, mentioning the date of the last update is essential for a more accurate comparison.
TVL (Total Value Locked): Indicates the total value locked in a network, reflecting users’ trust in a specific network.
“Blockchain technology is not just for settling securities; it will fundamentally alter market structures and even the very architecture of the internet.” -Abigail Johnson, CEO of Fidelity Investments
Leading Optimistic Rollup Networks
This section will explore the essence and performance of some of Ethereum’s top Layer 2 networks using Optimistic Rollup technology:
1. Arbitrum Network:
As seen in Figure 3, the Arbitrum chain, with a 33.7% market share, still holds the highest TVL among Ethereum Layer 2 chains. However, due to the rapid growth of Base and the emergence of Blast, Arbitrum finds itself in a weaker position compared to Optimism.
Additionally, new projects like ApeChain and Animechain, respectively developed by active NFT industry teams Bored Ape Yacht Club and Azuki, are utilizing Arbitrum’s Orbit technology to create Layer 3 chains. Consequently, Arbitrum’s future competition with Optimism may depend on the success of these standout new chains.
However, as shown in Figure 4, in terms of daily transactions, Arbitrum fell behind Base in 2024 and ranked second. Base recently reached its highest daily transaction volume with 3.5 million transactions on June 28. Moreover, Base surpassed zkSync Era, which previously held the second rank for daily transactions and briefly led the metric in 2023.
ARB Token in Arbitrum
ARB is Arbitrum’s network token. Figure 5 shows that despite Arbitrum’s leadership in TVL compared to other Ethereum Layer 2 networks, the market value of the ARB token remains on par with other optimistic tokens, currently around $2.3 billion. This amount roughly equals the market value of the MNT token in the Mantle project and is slightly higher than the OP token of Optimism, which currently has a market value of approximately $1.8 billion.
2. Base Network:
This project, surpassing Optimism in 2024, became Ethereum’s second most popular Layer 2 blockchain after Arbitrum. Base is the proprietary solution of the Coinbase exchange, launched in August 2023, and built using OP Stack. OP Stack includes a set of open-source tools and protocols designed to build and customize Layer 2 blockchains on the Ethereum network. In simpler terms, OP Stack acts as a toolbox enabling developers to create blockchains tailored to their desired features and functions without having to program everything from scratch.
Experts believe that Base’s stability in the first half of 2024 demonstrates its network’s sustainability and future growth. Just one year after launching its mainnet, Base has managed to reach a TVL exceeding $1.5 billion. Additionally, its growing chain ecosystem now hosts over 200 decentralized applications, many of which are native to this Layer 2 chain.
According to Figure 6, Base has emerged as Ethereum’s highest-earning Layer 2 chain so far in 2024, recording revenue of $42.6 million during this period—almost double the revenue of the Linea Layer 2 project, which ranks second.
Base as a Competitor to Solana in the Meme Coin Market
Base has also emerged as a serious competitor to Solana’s dominance in the meme coin market. The ecosystem of meme coins on the Base network is growing. Currently, the total market value of meme coins is approximately $52 billion, of which meme coins on the Base network account for about 4%. This places Base’s meme coins in third place after Solana’s meme coins, which hold 14% of the market. Ethereum remains the largest player in the meme coin market, with its native meme coins collectively valued at approximately $38 billion.
The Brett meme coin, a native project on the Base network, experienced major success in 2024. Launched on February 29, this meme coin quickly made it into the top 100 digital currency tokens and solidified its position at rank 74 in the market with a market value exceeding $1 billion.
3. Optimism Network:
While Optimism’s Layer 2 solution has seen a slight decline in network activity and TVL compared to newer Layer 2 chains like Base and Blast, it still excels in other metrics, making it a leading Layer 2 solution. The rapid growth of newcomers in this field highlights the significant increase in the adoption of OP Stack technology and the Superchain ecosystem.
While Arbitrum continues to lead as Ethereum’s top Layer 2 chain with the highest TVL (approximately $2.8 billion locked in its smart contracts), the combined TVL of the most popular Layer 2 blockchains in the Optimism ecosystem—OP Mainnet, Base, and Blast—now surpasses Arbitrum’s ecosystem, reaching approximately $3.7 billion.
The evolving interchain collaborations in Layer 2 projects through the Superchain technology in Optimism and Orbit technology in Arbitrum indicate that comparing the competition between these networks will require evaluating the aggregated metrics of all ecosystems utilizing the innovative staking models.
From a business and revenue perspective, Optimism, bolstered by Base’s exponential growth, is poised to perform well in 2024. According to an ongoing agreement between Base (which uses OP Stack) and Optimism, Base is obligated to pay Optimism 2.5% of its revenue or 15% of its net profit (whichever is higher). In exchange for this collaboration, Base will receive up to 118 million OP tokens worth $175 million over six years.
Under this agreement, given Base’s approximate $35 million profit so far, Optimism can record an additional $5.25 million in revenue for the first half of the year, besides its $13 million revenue from the OP Mainnet network.
“If crypto succeeds, it’s not just because it empowers individuals but because it empowers institutions.” -Vitalik Buterin, Founder of Ethereum
Optimism’s Growth with New Fault-Proof Mechanism
In general, when a user sends a transaction to a network based on rollups, that transaction is batched with other users’ transactions and transferred to Ethereum. These transaction bundles are collectively recorded in Ethereum Layer 1’s ledger. This process allows faster transactions at significantly lower costs for users. With Optimism’s new Fault Proof mechanism, rollup transactions are secured using one of the cryptographic methods to verify and validate transaction details recorded on Ethereum.
This mechanism enhances user trust, ensuring that transactions are secured without relying solely on the rollup network’s security. Furthermore, with the deployment of this mechanism on Optimism’s mainnet, other chains utilizing Optimism OP technology (like Base and Blast) can access this innovation. According to Binance’s report, Optimism aims to achieve the following features to realize its Superchain vision:
| Feature | Goal | Advantages | Challenges |
|---|---|---|---|
| Shared Layer-1 Blockchain | Provide a universal ordering of transactions across all OP chains | Coordination, security | A Shared Bridge for All OP Chains |
| Common Bridge for All OP Chains | Enable standard security features for all OP chains | Ease of use, security | – |
| Low-Cost Deployment of OP Chains | Allow deployment and transactions on OP chains without high Layer-1 costs | Increased adoption, innovation | – |
| Configuration Options for OP Chains | Enable configuration of data availability providers, sequencer addresses, etc., for OP chains | Flexibility, efficiency | Complexity, coordination |
| Secure Transactions and Cross-Chain Messaging | Allow secure state transfers across OP chains for users | Interoperability, security | Standardization, security |
The increase in the number of chains actively utilizing the OP ecosystem can lay the groundwork for achieving the long-term goals of Superchain on Optimism. The development of new decentralized applications across different OP chains to provide liquidity, alongside the elimination of bridging processes for end users, is a significant event. This approach reduces the complexity of learning and the skills required to launch a Superchain and its related decentralized applications, ultimately leading to broader adoption.
The table below lists various blockchain chains built on the OP stack, categorized by application type (the primary area of activity for each chain), the cumulative number of transactions (the total number of transactions performed on each chain up to a specified date), and the cumulative number of unique addresses.
| Chain Name | Application Type | Cumulative Transactions (Million Units) | Unique Addresses (Million Units) |
|---|---|---|---|
| OP Mainnet | General | 294.2 | 150 |
| Base | General | 396 | 86.4 |
| Blast | General | 78.1 | 1.95 |
| CELO | DeFi – Mobile | 387 | 14.7 |
| Zora Network | NFT | 54.0 | 3.6 |
| Public Goods Network | General/Public Goods | 16.7 | 1.2 |
| Mode (Developer Mainnet) | General (Developers) | 34 | 0.5 |
| DeBank Chain (Testnet) | SocialFi – Experimental | 5.7 | 0.18 |
| Ancient8 Chain | Gaming | 9.5 | 1.6 |
Chains based on the OP Stack are utilized in various domains such as DeFi, NFTs, gaming, and social networks.
OP Mainnet and Base:
These two chains rank at the top in terms of transaction numbers and unique addresses, demonstrating their high popularity.
Celo (CELO):
This chain, focused on the DeFi space and targeting mobile users, has significant growth potential in decentralized finance. In May 2024, the Celo community decided to transition its Layer 1 chain to the Ethereum ecosystem as a Layer 2 chain using the OP Stack.
Zora Network:
This chain is recognized as a specialized platform for NFTs and operates actively in this field.
“Today, blockchain technology is considered one of the main pillars in the development of the metaverse, as it enables the creation of a decentralized digital economy and the ownership of virtual assets.”
— Neal Stephenson, American author
These data indicate significant growth in OP Stack-based chains within the blockchain ecosystem and their ability to attract a large number of users and transactions. Additionally, the launch of the “Ancient8” project as an Ethereum Layer 2 network focused on online gaming marks an important step toward increasing the efficiency of the OP Stack ecosystem. This project officially launched its mainnet in February 2024 after 10 months of testing on a testnet that began in September 2023.
Ancient8 utilizes the OP Stack and the “Celestia” network as a data availability layer. The project’s goal is to address scalability and adoption challenges for blockchain-based games and consumer-facing decentralized applications. Thus far, it has collaborated with five prominent games in the field.
4. Blast Network:
In Q4 2023, “Pacman,” an anonymous crypto developer on X and the founder of the “Blur” platform (a marketplace for NFT trading), announced the launch of the Blast Layer 2 blockchain. Shortly after, the Blur team enabled Ethereum deposits into the Blast bridge for users and promised an airdrop of tokens after the mainnet launch. This airdrop incentive attracted investments worth over $2 billion to the Blast bridge even before the mainnet launch.
Promotional campaigns, airdrops, and the strong reputation of the Blur team in the NFT space, alongside their reliable products and support from the reputable investment firm “Paradigm,” created ideal conditions for Blast to become one of the best Ethereum Layer 2 launches to date.
How Blast Network Operates:
The Blast project built its Layer 2 network using the OP Stack, with a key feature being automatic rewards for users holding Ethereum or Blast’s native stablecoin “USDB” in their wallets.
For Ethereum holders, Layer 1 staking rewards are generated through the “Lido” DeFi platform and automatically distributed to users via re-released Ethereum coins in Blast. Users depositing stablecoins into the Blast bridge receive the USDB token. The staking rewards for USDB tokens are paid through the “T-Bill” protocol in the “MakerDAO” chain. Upon returning to the Ethereum mainnet, USDB can be converted into the stablecoin “DAI.”
Following the mainnet launch on February 29, 2024, Blast announced the continuation of its campaign, offering users opportunities to increase their investments by interacting with on-chain decentralized applications. This campaign was a major success, and as shown in Figure 8, the Blast mainnet reached the second-highest TVL among Ethereum rollups by June 2024. However, after the airdrop ended, the locked investment in Blast dropped below Base’s level. Blast’s ability to maintain its locked value and activity after the airdrop period through the end of this year could indicate the sustainability and loyalty of its early users.
Blast Token Airdrop:
The distribution of Blast tokens to the platform’s early user community took place on June 26, with 50% of the project’s tokens allocated for airdrops to the community, distributed as follows: 7% of the total supply to users who transferred assets to the Blast platform, 7% to users who interacted with Blast decentralized applications and the remaining 36% will be distributed through future incentive campaigns The initial value of the Blast airdrop, based on the current token price of approximately $0.014 per token, is estimated at $190.5 million. At the time of writing, Blast’s circulating market value is $238 million, with its total value (assuming all tokens are in circulation) reaching $1.36 billion.
Blast’s Next Phase:
The distribution of Blast tokens marked the end of its first phase on June 26. In the next phase, the Blast Foundation announced plans to develop a dedicated desktop and mobile wallet for the network’s native users. The project aims to create a fully integrated and self-sufficient blockchain platform, including all layers necessary to run a blockchain network, such as the consensus layer, smart contracts, and application layer.
“Blockchain security is like a fortress; if there is one weakness, the entire system is at risk.”
— Vitalik Buterin
Although zero-knowledge rollups are weaker in on-chain metrics compared to optimistic rollups, the zkSync Era network and other zero-knowledge rollups experienced significant events in the first half of 2024.
1. zkSync Token Airdrop:
On June 17, 2024, the zkSync Era network began distributing zk (ZK) tokens among early users of Layer 2 chains. The token entered the market with an initial market cap of $800 million and a total valuation of $4.5 billion. Since its release, the token price stabilized between $0.15 and $0.18, with its circulating market cap reaching around $670 million. This is slightly below the circulating market cap of the “Stark” (STRK) token in the StarkNet Layer 2 network, which currently has a value close to $900 million.
Performance and Technology of zkSync Era:
The zkSync Era project was developed by the “Matter Labs” team. Within the project’s internal framework, three entities—Security Council, Guardians, and the “Token Assembly” Foundation—oversee operations. Token Assembly, as a blockchain-based governance entity, establishes a system called “ZK Nation.” Proposals and initiatives under the protocol’s governance system, tokens, and zkSync operations are reviewed and approved, enhancing decision-making and collaboration.
Matter Labs introduced a new technology called “Elastic Chain” in this project. Elastic Chain is part of the zkSync 3.0 roadmap, designed to empower developers to create custom blockchains using zkSync technology. These custom blockchains can interconnect via Elastic Chain, providing a seamless user experience akin to using a single unified chain. Elastic Chain technology bears similarities to the technology used in the Polygon project. As such, experts believe this project could compete with Polygon.
2. Scroll Network:
Another layer-2 project on Ethereum that uses zero-knowledge technology is Scroll, launched in October 2023. Scroll has experienced remarkable growth in its Total Value Locked (TVL) this year. A significant portion of this growth can be attributed to an advertising campaign launched in May. During this campaign, users earned rewards called “Scroll Marks” for transferring assets to the Scroll layer-2 network and interacting with its decentralized applications.
Scroll’s TVL has now reached approximately $430 million, placing it second after Linea in this category. Currently, Scroll accounts for over 30% of the total TVL across all layer-2 zero-knowledge rollups.
Among the various zero-knowledge rollup token launches in 2024, Scroll Network has promised that the Scroll token airdrop will be a noteworthy event.
“Most users accessing our existing virtual world do so through portals ultimately outside our control.”
— Mark Zuckerberg, CEO of Meta
3. Linea Network:
This Ethereum layer-2 project was launched in August 2023 by ConsenSys, a prominent entity in the crypto industry. Linea is a cutting-edge blockchain layer-2 solution utilizing zero-knowledge rollups, significantly improving Ethereum’s speed, scalability, and transaction costs. Since its launch last year, it has seen substantial adoption, largely due to the introduction of a rewards campaign in May.
Linea Surge Rewards Campaign:
This campaign, known as “Linea Surge,” features a point-based program that rewards users with free ZERO tokens for maintaining assets on the Linea platform. The campaign has achieved notable success, with TVL doubling shortly after the first phase began in May. Since early 2024, Linea’s TVL has increased over twelvefold, from about $55 million to over $700 million. This growth has significantly outpaced that of Scroll, which launched its rewards campaign earlier this year.
4. StarkNet Network:
StarkNet is a permissionless zero-knowledge rollup on the Ethereum blockchain that employs the Cairo programming language and virtual machine. This virtual machine is optimized for STARK-based proofs, enabling users to verify computations without revealing the underlying data. The StarkWare team, the project’s developers, believe that StarkNet has the potential to become the most practical zero-knowledge rollup.
STRK Token Airdrop:
On February 20, 2024, StarkNet distributed its STRK token, becoming the first zero-knowledge rollup to launch a token—excluding Polygon’s MATIC, which started in 2017 as an Ethereum sidechain. The STRK token debuted with an initial market cap of approximately $1.4 billion and a total market valuation of $10.95 billion. The current STRK token price is around $0.68, with a circulating market cap of about $894 million.
Parallel Transactions Preparation:
In March, StarkNet announced plans to implement parallel transactions as part of its 2024 roadmap. According to Eli Ben Sasson, President and CEO of StarkWare, StarkNet’s new designs will enable parallel execution capabilities.
Parallel execution can significantly enhance a blockchain network’s efficiency and scalability. This approach is akin to Solana’s method of processing multiple transactions simultaneously, positioning StarkNet as a high-performance layer-2 network for faster and more scalable transactions. Adopting similar techniques for parallel execution, StarkNet could achieve comparable throughput levels and become a competitive option for Ethereum developers.
“Security is the foundation of any financial system, and blockchain is no exception. We must continually strive to improve the security of blockchain networks.”
— Charles Hoskinson, Founder of Cardano
5. Polygon zkEVM:
In January 2024, Polygon (an Ethereum sidechain focused on scalability) unveiled its “Agglayer” initiative. This concept aims to integrate fragmented and separate blockchains into a unified network. Like the TCP/IP protocol for the web, Agglayer leverages zero-knowledge technology to ensure the security of connected layer-1 and layer-2 chains.
Key Functions of Agglayer:
- Aggregating zero-knowledge proofs from all connected chains.
- Ensuring nearly instantaneous and secure cross-chain transactions.
Polygon, currently holding around $14 million in TVL, is the first chain under Agglayer. The Astar Network is the second, having integrated with Polygon’s Agglayer in March of this year. Astar, a leading project in the Polkadot ecosystem, launched its zero-knowledge chain using Polygon’s modular and open-source Chain Development Kit (CDK).
Layer-2 Blockchain Outlook:
It is clear that covering all layer-2 cryptocurrency projects in one article is impossible. This report has focused on several major ones that made significant strides in 2024. While all the reviewed layer-2 networks share a common goal, their approaches to data aggregation vary, resulting in different types such as optimistic rollups and zero-knowledge rollups. While optimistic rollups are uniquely designed for Ethereum, their advantages make them applicable to other platforms as well. The most popular projects in this group are Arbitrum and Optimism, which we introduced earlier in this report.
Final Thoughts:
In conclusion, layer-2 blockchains have played a crucial role in enhancing the performance and scalability of blockchain-based projects in 2024. These technologies have reduced barriers to widespread blockchain adoption by offering faster transactions and lower costs, enabling broader applications in financial and non-financial domains. Furthermore, increased collaboration and the development of common standards among layer-2 projects have significantly improved the security and reliability of these systems. Overall, the advancements in layer-2 blockchains this year signal a promising and sustainable growth trajectory for blockchain technology in the global economy.
Source:
https://www.binance.com/en/research/analysis/half-year-report-2024
