Top 10 Ethereum Layer 2 Crypto Projects in 2024

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August 27, 2024 08:47 EDT

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Every time the crypto bull market kicks in, Ethereum mainnet transactions become expensive. As such, several projects have made significant progress in creating cheaper, faster, and more functional layer 2 (L2) networks.

This article provides a technical overview of the best Ethereum layer 2 crypto projects with the most potential in 2024. We consider factors like tokenomics, network activity, market cap, technology, and more.

Analyzing the Best Ethereum Layer 2 Tokens

Now that we have provided our list of layer 2 tokens, let’s dive deeper into each token, what makes them unique, and what gives them such potential.

1. Pepe Unchained (PEPU) — First Layer 2 Pepe Token on its Own Chain

Pepe Unchained‘s foundation is rooted in meme coin culture, but it’s much more than just a meme coin. Created to be an upgrade of the Original Pepe, it’s built as a separate layer 2 network atop Ethereum’s layer 1.

This gives its users and supporters a way to trade, stake, and interact with the ecosystem, but it also gives its holders a clear utility proposition — low fees and up to 10 times quicker transactions compared to ETH. Pepe Unchained also has a low-fee bridging system between Ethereum and Pepe Chain.

The project uses $PEPU as the blockchain’s main cryptocurrency, which means that all gas fees are paid with the coin. On the other hand, Pepe Unchained supporters are also able to stake their coins, with the current APR sitting at almost 1,200% per annum.

One thing to note is that Pepe Unchained has launched its presale, already raising over $1.8 million at the time of writing.

Visit Pepe Unchained

2. Arbitrum (ARB) — Best for Low-Cost Transactions

Arbitrum is the best Ethereum layer 2 project for low-cost transactions due to its advanced scaling technology. It significantly reduces gas fees, making transactions cheaper compared to other L2 solutions like Optimism. This cost efficiency is achieved through its optimistic rollup technology, which batches multiple transactions before submitting them to the Ethereum mainnet, minimizing fees.

Arbitrum supports Ethereum-compatible smart contracts and decentralized applications (dApps) without compromising speed or performance. Its ecosystem includes Arbitrum One and Arbitrum Nova, both leveraging the Arbitrum Nitro stack for enhanced throughput and reduced costs. With over $2.97 billion in Total Value Locked (TVL), it holds one of the highest TVL among L2 solutions​.

Unique features include decentralized governance through the ARB token, which allows users to vote on network upgrades and other proposals. This governance model is complemented by Arbitrum’s security, which is derived from Ethereum’s consensus. Additionally, Arbitrum’s AnyTrust chains offer ultra-low transaction fees, ideal for applications like gaming and social platforms.

To learn more about our thoughts on Arbitrum’s future, read our Arbitrum price prediction.

3. Polygon (MATIC) — Most Versatile Ethereum Scaling Solution

Polygon is the most versatile Ethereum L2, offering a range of technologies for scaling Ethereum. Its versatility stems from supporting multiple scaling techniques, including Polygon PoS, zkEVM, and Polygon Miden, catering to various developer needs and use cases.

• Polygon PoS enhances transaction throughput and reduces gas fees by processing transactions on a sidechain.
• zkEVM, an open-source ZK-Rollup, ensures high scalability and low costs with Ethereum Virtual Machine (EVM) compatibility.
• Polygon ID provides blockchain-native identity solutions.
• AggLayer promises trustless cross-chain interoperability.

Polygon 2.0 introduces POL, a hyperproductive token facilitating staking and governance across multiple chains. It aims to unify liquidity and scalability via zero-knowledge (ZK) technology. With a current market cap of $7.40 billion and a circulating supply of 9.28 billion MATIC, Polygon remains a leading choice for developers seeking scalable and versatile solutions​.

4. Optimism (OP) — Best for EVM Equivalence

Optimism is considered the best Ethereum Layer 2 project for EVM equivalence. Its design ensures compatibility with Ethereum’s smart contracts and dApps without requiring modifications, making it an ideal choice for developers aiming for efficient deployment on Ethereum.

Optimism uses Optimistic Rollups to achieve scalability and reduce transaction costs. By processing transactions off-chain and only recording the results on Ethereum, it maintains high throughput while leveraging Ethereum’s security. Its ecosystem supports various projects, reflecting its versatility and robust infrastructure.

Unique features include its OP token, which supports governance and incentivizes network participation. Optimism’s roadmap includes continuous improvements to its infrastructure, aiming to enhance performance and expand its ecosystem. With a strong community and a clear vision, Optimism remains a top choice among Ethereum L2s.

5. Blast (BLAST) — Most Innovative Ethereum L2 Project

Blast is the most innovative Ethereum scaling solution due to its unique yield generation mechanism. Unlike other L2s, Blast offers native yield on ETH and stablecoins like USDC, USDT, and DAI, directly integrating Ethereum’s staking and Treasury Bill protocols. This feature allows users to earn passive income without additional steps.

Blast uses an optimistic rollup mechanism to ensure EVM compatibility. This allows seamless deployment of dApps without modifications. Its auto-rebasing feature for ETH and USDB simplifies yield accrual, making it user-friendly for both developers and end-users.

Additionally, it features a gas revenue-sharing model that redistributes net gas fees to dApp developers. Having reached over $500 million in TVL shortly after launch, Blast demonstrated significant growth and potential.

6. Loopring (LRC) — Best for Building Decentralized Exchanges (DEXs)

Loopring, a blockchain-agnostic protocol, was specifically designed for building decentralized exchanges. It provides DEXs with features like order rings, which match multiple orders circularly to optimize liquidity and efficiency. Unique features include its ability to process trades off-chain while settling them on-chain, blending the efficiency of centralized exchanges with the security of decentralized platforms.

Loopring leverages zero-knowledge rollups to batch multiple transactions off-chain and produce cryptographic proofs verified on the Ethereum mainnet. This ensures Ethereum-grade security while reducing gas fees and increasing transaction throughput.

The LRC token is integral for staking, governance, and earning a share of protocol fees, ensuring network security and community involvement. Loopring remains a top choice for secure and scalable Ethereum transactions.

7. Eclipse — Best for Transaction Speed

8. Mantle (MNT) — Best for Decentralization

Mantle is the best Layer 2 for decentralization due to its unique governance model and architecture. It is a DAO-governed network, meaning key decisions are made by MNT token holders, ensuring a decentralized and community-driven development process. This governance structure, combined with its modular design, enables high levels of decentralization and flexibility.

Mantle’s architecture separates transaction execution, data availability, and transaction finality into distinct modules. It uses Optimistic Rollups for scaling, which compresses transactions and settles them on Ethereum, significantly reducing gas fees and enhancing throughput. Mantle also employs EigenDA for decentralized data availability, further promoting a decentralized framework​.

Additionally, the Mantle EcoFund and Grants Program support new projects, fostering innovation within the ecosystem. This combination of decentralization, modularity, and robust developer support positions Mantle as a leading Ethereum L2 project. Mnatle has also merged with BitDAO recently, helping add to its success.

9. Immutable X (IMX) — Best for NFTs and Blockchain Gaming

Immutable X is the best Ethereum layer 2 solution for NFTs due to its gas-free minting and trading, combined with instant transaction speeds and scalability. Using StarkWare’s ZK-Rollup technology, Immutable X enables high-volume NFT transactions without compromising security, making it ideal for creators and traders seeking cost efficiency and performance.

Immutable X offers a carbon-neutral platform, contributing to its appeal among environmentally conscious developers and users. The platform provides an API-driven approach, allowing easy integration for developers without deep blockchain knowledge. This feature, along with a global order book that propagates NFTs across multiple marketplaces, enhances the platform’s usability and reach.

Notable differentiators include the Immutable X Marketplace, which supports gas-free transactions, and the $IMX token for staking, governance, and transaction fees. The platform also hosts various high-profile gaming projects like Gods Unchained and Illuvium, leveraging its scalable and secure infrastructure to support next-generation Web3 games.

10. dYdX (DYDX) — Best for Decentralized Perpetual Trading

dYdX is the best Ethereum layer 2 project for decentralized perpetual trading due to its unique off-chain order handling and on-chain state changes. This design significantly improves throughput and reduces gas fees, making it ideal for high-frequency traders and market makers who frequently update their orders​.

dYdX supports margin and perpetual trading with up to 20x leverage, catering to professional traders seeking advanced trading tools. Key characteristics of dYdX include its non-custodial nature, ensuring users maintain control over their assets. It uses ZK-Rollups to increase scalability while preserving Ethereum’s security.

Distinctive features of dYdX include its decentralized governance via the $DYDX token, which allows the community to propose and vote on protocol upgrades. Additionally, the platform’s transition to dYdX v4 on the Cosmos SDK aims to further decentralize and enhance performance​.

BONUS: Shibarium (SHIBARIUM) — Best for Community-Driven Projects

Shibarium is the best L2 for community-driven projects due to its strong focus on decentralization and community engagement. It uses a proof-of-participation (PoP) consensus mechanism, ensuring validators are selected based on their stake, and fostering a fair and community-centric environment. This approach reduces computational costs and promotes a more scalable and cost-effective transaction platform.

Shibarium enhances the Shiba Inu ecosystem by providing faster transaction speeds and significantly lower fees. Transactions that might cost over $20 on Ethereum can be reduced to just $0.01 on Shibarium, making it highly attractive for dApps. Additionally, each transaction burns SHIB tokens, adding a deflationary aspect to the ecosystem and potentially increasing the value of SHIB, one of the best meme coins in 2024.

Unique features of Shibarium include its support for a wide range of projects, from DEXs like ShibaSwap to metaverse initiatives. The platform’s governance model relies on the BONE token, used for staking and participating in decision-making processes. Shibarium’s integration with the EVM ensures compatibility and interoperability with existing Ethereum dApps, further promoting its adoption and utility.

The Best Ethereum Layer 2 Projects by Market Cap

Here’s a list of the largest Ethereum layer 2 projects, ranked by their market cap.

What Is an Ethereum Layer 2 Project?

Layer 2 networks were created as a response to Ethereum — a layer 1 crypto — having too low throughput to support the amount of traffic on its network. Scaling solutions built on top of Ethereum’s layer 1 blockchain process transactions independently and only do final verifications on the main blockchain. While the most common types of layer 2 networks are sidechains and rollups, there are different shapes and flavors of scaling solutions, including:

• Rollups (zkRollups and optimistic rollups)
• Sidechains
• State/payment channels
• Plasma chains
• Validiums (zkSNARKs and zkSTARKs)

Let’s look at each type of Ethereum layer 2s individually and examine their inner workings.

Rollups

As mentioned, there are two types of rollups: optimistic rollups and zero knowledge rollups (zkRollups). While they differ in centralization, finality, and data storage, their basic principle works similarly.

The rollups bundle hundreds of separate transactions and report them to layer 1 in a single transaction. As such, the fees accrued only amount to one transaction, making transacting on a rollup a fraction of the cost of one on a layer 1.

While rollup transactions are computed on a separate blockchain, they are reported to and stored on the main chain for finality. As a result, rollups are guaranteed the same security as the main chain because altering a final transaction on the rollup chain would also mean changing the transaction on the main chain.

Optimistic Rollups

Optimistic rollups work under the assumption that all transactions are valid by default — hence the name “optimistic.” In order to spot a potential invalid transaction, they employ a fraud-protection method based on validators reporting the transaction during a specific time frame. This means that they require at least one honest validator at all times.

The most notable optimistic rollup layer 2s include Optimism and Arbitrum.

zkRollups

Unlike optimistic rollups, zkRollups don’t have to work under any assumptions. Instead, they use a cryptographic method called zero-knowledge proofs to verify transactions without exposing the identity of the participants or the contents of the transaction. While this increases the network’s security, it also increases its operating costs and complexity.

The most notable zkRollup layer 2s include zkEVM, zkSync, and Starknet.

Sidechains

Sidechains work differently from rollups in that they maintain their own network state using their own consensus mechanism. As such, they do not benefit from layer one security the same way rollups do, but this comes with the advantage of not storing data on layer 1.

Instead of reporting transactions to layer 1, sidechains run in parallel with layer one, using bridges to transfer assets between the chains. Sidechains are becoming less used as the emergence of rollups grows.

The most well-known sidechain is Polygon, although, as we discussed earlier, it has recently launched a zkRollup chain, zkEVM.

State/Payment Channels

State or payment channels are peer-to-peer networks that enable two parties to transact among themselves. When looking at their core components, they are most similar to Bitcoin’s Lightning Network. The channels work like IoUs, only submitting the final results to the main blockchain.

These channels’ core purpose is to facilitate micropayments or frequent payments between two parties, as regular on-chain transactions would simply cost too much. On top of that, main chains like Ethereum’s blockchain take time to settle transactions, and that may not be optimal for parties that need to transact often and quickly.

Plasma Chains

Often referred to as a “child” of Ethereum, plasma chains are, in essence, small copies of Ethereum mainnet.

The architecture works by creating root contracts as an element of each of the plasma side chains. This root contract links the child chains to the main chains while establishing a set of rules that guides each of the plasma chains. One thing to note is that plasma is still an under-tested and under-used system, though developers are coming out with new upgrades very quickly.

Validiums (zkSNARKs and zkSTARKs)

Validiums are another form of scaling solution that uses off-chain computation in terms of zero-knowledge proofs. Once they finish computing a transaction, they publish proofs directly on Ethereum to verify it.

Validity proofs submitted to Ethereum can come in the form of zkSNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) and zkSTARKs (Zero-Knowledge Scalable Transparent Argument of Knowledge).

Validiums are great for certain use cases, such as blockchain gaming or trading, as they require privacy and scalability equally. However, as with all technologies that use zero-knowledge proofs, they suffer from high hardware costs.

Why Invest in Ethereum Layer 2 Blockchain Coins?

As we saw with the Polygon MATIC price in the last bull run, helping solve the scalability issue in crypto can be a very lucrative use case. With that in mind, here are the reasons to buy layer 2 coins.

Improved Scalability and Efficiency

Ethereum’s network currently processes approximately 600 transactions every 12 seconds, putting its throughput at ~50 tp/s. While this number doesn’t seem like much, this number was achieved only after the recent Dencun upgrade. Prior to that, Ethereum handled 15 to 30 transactions per second.

On the other hand, its scaling solutions not only handle more transactions per second on average; they also reduce the necessity of many transactions to be handled directly on Ethereum, making it a win-win situation for the second-largest cryptocurrency by market cap.

Growing Demand and Adoption

Cryptocurrencies as an investment vehicle and development ecosystem are becoming more popular as time passes. This is especially true after the introduction of Bitcoin and Ethereum ETFs, where crypto has de-facto become mainstream.

With increased adoption comes increased demand; with increased demand comes more transactions and more scalability problems. This is where layer 2 scaling solutions step in and provide a much-needed fix.

Reduced Gas Fees

Layer 2 scaling solutions are created — as their name suggests — to improve scaling. This means higher throughput, as well as lower gas fees.

When comparing an uncongested mainnet to an uncongested layer 2 network, gas fees are often not too different. However, we’ve all seen peak Ethereum mainnet congestion gas fees that reached hundreds of dollars in 2021.

In order to avoid getting caught in such congestion, it’s smart to consider having layer 2 networks in your arsenal.

High Upside Potential

While Bitcoin and Ethereum sit at market caps well over $100 billion, the largest layer 2 by market cap is Polygon, which is at just over $5 billion. Furthermore, many layer 2’s on our list have less than $1 billion market caps.

Although they could present a higher risk, low market cap layer 2s could provide vastly more upside potential than well-established coins like Bitcoin or Ethereum. Therefore, if you are looking for a layer 2 crypto with the most upside, you might want to check smaller market cap projects.

What Is the Best Ethereum Layer 2 Coin?

Deciding which layer 2 to invest in can be overwhelming. However, we have broken down the main things worth considering below.

Market Cap

As with any asset class, market cap plays an impactful role in the potential of a crypto. Each project has a ceiling based on the market’s liquidity and the individual project’s importance.

Therefore, understanding a project’s significance and comparing it to its market cap is a great way to decide which tokens are best to buy.

Network Effect

The best way to determine a project’s significance is to understand its network effect. This comes down to considering factors like its daily active users, daily revenue, number of protocols (and success of protocols), number of developers and total value locked on the chain.

A chain that scores high for each but has a relatively low market cap may fare a better investment.

Tokenomics

It is also essential to consider tokenomics. Factors like the level of utility that the token provides, the circulating supply, and the vesting schedule all play a significant role in the success of a project.

Technology

It’s important to consider the technology behind the layer 2 project. Some scaling solutions use groundbreaking technology with more potential, while others use older and safer systems.

While it takes a high degree of technical expertise to understand the intricacies of each technology segment, it’s worth looking into expert opinions and looking for potential system vulnerabilities before dedicating any amount of funds to a singular layer 2 project.

Conclusion

Ethereum layer 2s are some of the most high-potential cryptos on the market today. However, after thoroughly examining the best Ethereum layer 2 projects, we found that Pepe Unchained ($PEPU) could be the best one in the market today.

This Pepe-themed meme token is built on Ethereum’s L2 chain, and offers high staking rewards, low transaction costs, and fast transaction speeds. Currently, $PEPU is available to purchase on presale.

Visit Pepe Unchained

FAQs

What are the layer 2 blockchains?

There are countless layer 2 blockchains spanning multiple blockchains, including Ethereum and Bitcoin. However, our analysis found the top layer 2 networks to be Pepe Unchained, Arbitrum, Polygon, Immutable X, dYdX, Loopring and Shiba Inu’s Shibarium.

What are Ethereum layer 2 blockchains?

Ethereum layer 2 blockchains are scaling solutions designed to help Ethereum settle transactions off of its mainnet. These transactions are usually processed either on a different chain and verified on Ethereum in batches, or processed off-chain completely, with Ethereum only seeing the final settlement.

What is the best Ethereum layer 2 crypto to invest in?

According to our analysis of the best layer 2 tokens, Pepe Unchained is currently the best layer 2 to invest in, followed by Arbitrum. That said, all investments carry risk, and choosing whether or not to buy an asset must be the choice of the individual investor.

Is Polkadot a layer 2 blockchain?

Polkadot is a “layer 0” blockchain, facilitating data transmission between up to 100 integrated layer 1 chains known as parachains. That said, besides some technical differences, parachains can be considered similar to layer two chains on other networks.

References

• L2Beat: The State of the Layer 2 Ecosystem
• L2fees.info: L2 Fees
• Arbitrum: Get Started With Arbitrum — Technical Documentation
• CoinDesk: Polygon zkEVM Mainnet Beta Goes Live; Ethereum’s Buterin Sends First Transaction
• Polygon: Aggregated Blockchains: A New Thesis
• Polygon: Polygon 2.0 Implementation Officially Begins, The First Set of PIPs (Polygon Improvement Proposals) Released
• Optimism: Welcome to the Optimism — Technical Documentation
• Blast: The Power of Blast L2, on Blast, Squared
• Coinrise: Ethereum L2 Blast Hit Milestone With TVL Worth Over $500M
• Cryptopedia: Loopring (LRC): Scaling Decentralized Exchanges with zk-Rollups
• Eclipse Documentation: What is Eclipse Mainnet?
• Mantle: Key Features of Mantle Network — Technical Documentation
• Blockonomi: Immutable X: The First Ethereum Layer 2 Scaling Solution for NFTs
• Revelo Intel: dYdX – Project Breakdown
• dYdX Foundation: Exploring the Future of DYDX
• CoinDesk: Decentralized Exchange dYdX Launches Public Testnet on Cosmos
• Shiba Inu Ecosystem: Introduction to Shibarium: Shiba Inu’s Layer 2 Network