One billion dollars has been invested in Ethereum Layer 2 Scaling Solutions.

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Second-layer scaling solutions are intended to alleviate network congestion on Ethereum, and they are gaining popularity.

Second-layer scaling solutions designed to counteract network congestion on Ethereum are booming, with over $1 billion locked up in scaling protocols, according to layer two ecosystem tracker L2Beat.

Heading up the list is crypto exchange dYdX, with $285.6 million locked.

Scaling solutions allow decentralised apps (dapps) to avoid network congestion by utilising a variety of technologies. L2Beat monitors layer two rollups, which are a form of scaling solution that sits atop the Ethereum blockchain, processing a batch of transactions before submitting them to the main chain as a single transaction.

Different variants of rollups, such as Optimistic, Plasma, Validium, and ZK-rollups, bundle and verify these series of transactions in various ways; of the top 10 protocols by value locked, ZK-rollups account for about half of the total $547.56 million locked.


Total value locked on various Layer-2 scaling solutions. Source: L2Beat.
Total value locked on various Layer two scaling solutions. Source: L2Beat.

The key difference between different types of rollup is whether they keep data on- or off-chain, and whether they employ Fraud Proofs (which present evidence that a block was incorrect) or Validity Proofs (which present evidence that a block was correct).

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Validium employs validity proofs with data saved off-chain, whereas ZK-rollups use validity proofs with data kept on-chain. Meanwhile, optimistic rollups employ fraud proofs with data stored on-chain, whereas Plasma and State Pools use fraud proofs with data stored off-chain.

Polygon, which the site’s founders define as a proof of stake sidechain, is one scaling solution that L2Beat does not track (essentially a clone of the Ethereum main chain, where assets can transactions are processed and moved, and can be called back to the main chain).

L2Beat defines layer two as “a chain that fully or partially derives its security from L1 Ethereum so that users do not have to rely on the honesty of L2 validators for the security of their funds.”

Future of scaling on Ethereum

The Ethereum network is transitioning to Ethereum 2.0, which will introduce a new consensus mechanism—proof of stake—as well as a new scalability mechanism, sharding. Sharding is the process of dividing big volumes of data into smaller parts.

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However, rollups have a position as a scaling mechanism, with the Ethereum network possibly capable of reaching 100,000 transactions per second by combining sharding with rollups and other scaling options.


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