• Ethereum Layer-2 Total Value Locked Exceeds $6 Billion

  • The total value locked in Ethereum Layer-2 networks has risen to a high of $6.13 billion, representing a 13.26 percent increase in the last seven days. This comes as gas prices on the Ethereum network continue to rise and DeFi gains traction.

    Arbitrum and dYdX are the frontrunners.

    L2beat, an analytics and research website about Ethereum L2 scaling, displays the number of TVL ross Ethereum L2 networks from August 24 to November 21, 2021, ranging from optimistic rollups to ZK rollups. At press time, they had accumulated approximately $6.13 billion, with Arbitrum, an optimistic rollup, and dYdX, a derivatives decentralized exchange, leading the board with $2.67 billion and $975 million, respectively.

    TVL growth corresponds to the demand for sidechain solutions, which provide lower gas fees and higher throughput. DeFi adoption has accelerated this year, resulting in massive traffic to the Ethereum network and an increase in gas fees.

    Ethereum is the DeFi space’s pioneer, with hundreds of projects built on top of the network. However, the heavy workload on its ecosystem has resulted in massive network congestion and an increase in gas prices, undermining its position as a leader in the space. Because of the high cost of transactions and the low throughput, institutional investors have shifted to other networks such as Solana (SOL) and Avalanche (AVL) (AVAX).

    What exactly are Layer 2 Solutions?

    Layer 2 solutions, also known as sidechains, are independent, third-party blockchains that are integrated into the Ethereum network to reduce the workload on the ETH platform.

    Sidechains emerged as scaling solutions for lowering gas fees and increasing transaction speed. They accomplish this by executing Ethereum transactions on the layer-2 platform while keeping the original data of the transaction inside layer-1 (the Ethereum mainnet), all while leveraging the power of smart contracts.

    Optimistic rollups and ZK rollups are two popular types of sidechains. Both technologies are extremely similar in that they store data off-chain in order to reduce network workload. There are some minor differences in the security model and how they generate proof of fraud.

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