Ethereum's Layer 2 Landscape: An Overview

Layer 2 is a collective term for technologies constructed above the Ethereum (‘ETH’) mainnet (layer 1) to enhance its scalability. These solutions aim to alleviate Ethereum's congestion and high gas fees by processing transactions off-chain or in a more efficient manner.

There are many layer 2 solutions on Ethereum. In this article, we delve into the diverse approaches taken by different layer 2 solutions to enhance Ethereum's scalability and improve user experience and all the Ethereum layer 2 solutions that we currently support.

Origins and Why They Are Needed

Ethereum is the second most recognised cryptocurrency after Bitcoin. It has played a pivotal role in establishing a decentralised financial ecosystem, remaining a focal point for innovation within the crypto sphere.

However, Ethereum faces challenges stemming from its widespread adoption. The Ethereum mainnet, or 'layer 1,' routinely handles over 1 million transactions daily, yet demand exceeds its current capacity.

This causes the network to become congested, which in turn pushes gas prices to exorbitant levels. As the average cost of transacting on layer 1 increases, more and more people find it difficult to use decentralised apps like decentralised exchanges or NFT marketplaces.

The solution for this problem are Ethereum Layer 2 blockchains which are separate chains built on top of Ethereum which allow users to transact on blockchains more quickly, while also reducing the cost of doing so.

How do ETH Layer 2 chains work?

L2 blockchains create what’s called a “secondary framework” to Layer 1 blockchains. They communicate with the main layer to handle many transactions at once. These transactions are processed separately from the L1 blockchain and then added back to it later. L2s don't need any big changes to the main layer. They do the job of processing transactions without affecting the security of the L1 blockchain.

In some ways, payment processors, like Visa, function like L2s. Rather than dealing with merchant transactions individually, Visa groups them together. After that, they send these batches regularly to banks. Banks, acting as the L1s, handle the transactions and keep track of them.

Ethereum and Its Layer 2 Ecosystem

There are three main ways a layer 2 can function, each with its advantages and disadvantages.

Sidechains

A side chain is a distinct blockchain connected to the main one, enabling asset transfers between them.

They work separately from Ethereum, with different tokenomics and consensus. But they are still compatible through the implementation of the EVM. There is, however, a greater risk than rollups since you must depend on the sidechain’s operations.

A notable example is Polygon.

Optimistic Rollups

These rollups work next to the main blockchain, handle transaction data, and send it back to the main layer. If there's any fraud, it can be challenged with a fraud-proof. If proven, the transaction will be redone with the correct data. This may take longer to add to Layer 1, but users can still complete transactions faster than on Layer 1.

Notable examples include Optimism, Arbitrum, and Base.

zkRollups

zkRollups use cryptographic proofs for transactions, called zero-knowledge proofs, which only confirm if a transaction is valid. This method needs very little data to go back to the main layer. But, zkRollups might not fully work with all types of smart contracts because they're not completely compatible with Ethereum Virtual Machine.

Notable examples include Astar zkEVM, Manta Network, zkSync Era.

SubQuery’s Support for ETH Layer 2s

As of now, we're supporting 74 EVM Networks. Some of these supported networks are also our customers. Find the full list here.

Some of the front-running Layer-2s we support are Polygon, Immutable X, and Mantle.

This number isn't final since we're continuously expanding our EVM Network support. Lately, numerous Layer-2 teams have approached us for support, giving us confidence that L2’s are here to stay and our supported networks will keep growing every month!

Get Indexing Support for Your EVM Layer-2 with SubQuery!

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Simply fill out this form below to get started! Our issue template initiates automated support for your EVM network, streamlining setup and testing. You're just minutes away from accessing indexing support!

After you submit your PR, our team will quickly review it and add it to our official examples repository. Your contribution means a lot to us, and we'll give you a shout-out on our social media!

Conclusion

Layer 2 solutions show how blockchain technology keeps getting better. They're not just small fixes but crucial for more people using crypto. These solutions tackle scalability issues, making blockchain networks faster and cheaper.

As they improve, they'll open up blockchain to more people worldwide. This progress isn't just about tech; it's about creating a digital economy that includes everyone.

About SubQuery

SubQuery Network is innovating web3 infrastructure with tools that empower builders to decentralise the future. Our fast, flexible, and open data indexer supercharges dApps on over 180 networks, enabling a user-focused web3 world. Soon, our Data Node will provide breakthroughs in the RPC industry, and deliver decentralisation without compromise. We pioneer the web3 revolution for visionaries and forward-thinkers. We’re not just a company — we’re a movement driving an inclusive and decentralised web3 era. Let’s shape the future of web3, together.