What Are Rollups in Crypto?
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Rollups are blockchain scaling solutions designed to achieve high transaction speed at ultra-low costs.
Unlike Bitcoin, which is a closed system, second and third-generation blockchains serve as the underlying infrastructure for decentralized applications (dApps) across multiple use cases.
Thanks to the smart contract feature, blockchains like Ethereum can host third-party dApps, which use the underlying resources for their own operations. Ethereum alone hosts nearly 5,000 active dApps, some of which have hundreds of thousands of users per month.
Understanding Rollups
Rollups are a specific type of L2 scaling solution that bundles Ethereum transactions off-chain and submits proofs on the mainnet, offloading the computational burden from Ethereum. They aim to reduce congestion on the underlying mainnet, processing more transactions at a lower cost. Transactions are rolled into a single block, with key data posted on Ethereum for security, hence the term ‘rollup.’
To compete with traditional financial applications, these blockchains require a lot of processing power to settle thousands of transactions per second at a low cost. Ethereum has demonstrated the potential of smart contracts and blockchain-based applications but has struggled with major challenges like high transaction fees and network congestion. For example, in May 2021, the average transaction fee on Ethereum went above $100, and that was not a feasible cost for a Web3 app aiming to increase its user base.
The growing demand for scaling led to the development of Layer 2 (L2) chains, which are secondary blockchain networks built atop underlying Layer 1s (L1) to increase throughput and speed. Today, there are dozens of L2 rollups scaling Ethereum and unlocking its full potential.
The first wave of L2s for Ethereum came amid the initial coin offering (ICO) frenzy in 2017, with Raiden, OmiseGO, and Matic (now Polygon). These secondary chains are state and plasma channels with a more straightforward transaction validation process. However, they require a high level of trust, and some do not even support smart contracts at all.
Rollups emerged as better scaling alternatives, offering improved security, scalability, and usability. They maintain a stronger connection with Ethereum and can communicate with its dApps.
Thanks to crypto rollups, dApps have become more user-friendly and faster, providing a Web2-like experience.
While transaction data is published on the mainnet, all activity happens on the L2 sidechain. The main chain and the sidechain are interoperable and run in parallel, exchanging data. dApps can now achieve up to 1,000 transactions per second (tps) compared to Ethereum’s 15 tps capacity.
Here are the main benefits of rollups.
Cost Efficiency
Rollup transactions are much cheaper compared to Ethereum. In March 2024, Ethereum implemented the Dencun upgrade, which allows L2s to store data more efficiently. The upgrade caused a 95% reduction in transaction costs on most rollups. Today, the average transaction costs on rollups range between $0.001 and $0.1. Thanks to these low fees, developers can build high-demand applications like gaming and decentralized finance (DeFi) more efficiently.
Scalability
By bundling transactions off-chain and posting only essential data to the mainnet, rollups increase transaction throughput and thus achieve greater scalability. As mentioned, Ethereum can process only around 15 tps, but rollups can boost this figure to 1,000 tps and even more.
Security
Unlike the first wave of L2s consisting of state and plasma channels, rollups share the security of Ethereum. Their data is always published on the mainnet, enabling users to verify data and exit the rollup without the need for centralized operators.
EVM Compatibility
Most rollups are compatible with the Ethereum Virtual Machine (EVM) – the computation engine that executes smart contracts on Ethereum. This means developers can deploy Ethereum dApps on the rollup chains, benefiting from lower fees and higher throughput.
User Experience
A decentralized internet is possible only with the mass adoption of dApps, and rollups are contributing to more user-friendly blockchain applications. By boosting performance and reducing costs, rollups help dApps offer a Web2-like experience while maintaining a high level of decentralization.
Types of Rollups
There are two main types of rollups: optimistic rollups and zero-knowledge (ZK) rollups.
In both cases, a rollup smart contract bundles multiple Ethereum transactions in a single batch to process them off-chain. A network of so-called sequencers is responsible for ordering transactions into groups.
However, the key difference lies in how the rollup data is recorded on the mainnet.
Optimistic Rollups
When bundling Ethereum transactions, optimistic rollups assume that all of them are valid unless proven false, hence their name. This type of rollups collects transactions into batches, publishes compressed data on the mainnet, and then implements a fraud-proof mechanism to eliminate or update the transactions that are challenged during a dispute period of seven days.
If there is no dispute after the close of the challenge period, the transaction batch is fully settled on Ethereum. If someone discovers a fraudulent transaction, they submit proof of fraud to Ethereum within seven days. The rollup then runs a bisection protocol and finds the exact invalid transaction to reject it. The party that submitted the invalid transaction loses their staked funds as a penalty, which goes to the entity submitting the fraud proof.
Since Optimistic rollups ignore initial verification, they are more efficient. Nevertheless, they reach true finality only after the challenge window of seven days.
Many developers still prefer this type of rollups due to their ease of use and Ethereum compatibility.
Popular Optimistic Rollups
Arbitrum remains the largest rollup and the largest L2 blockchain by total value locked (TVL). Arbitrum uses proprietary technology to ensure efficient scaling for Ethereum.
Launched in 2021, Arbitrum now offers two L2 chains: the flagship Arbitrum One rollup – which runs transactions on the EVM-compatible Arbitrum Virtual Machine (AVM), and Arbitrum Nova – which introduces an additional trust assumption in the form of a data availability committee (DAC), and is best suited for high-demand apps like gaming and non-fungible tokens (NFTs).
OP Mainnet (formerly known as Optimism) also launched in 2021 and has become a leading L2 player. Its Optimism Virtual Machine (OVM) extension supports Ethereum’s Solidity programming language, unlike Arbitrum’s AVM, which lets developers build in popular languages like Rust and C++.
Also, OP uses single-round fraud proofs carried out on Ethereum compared to Arbitrum’s multi-round fraud proofs conducted on its L2 network.
Base, Coinbase’s scaling solution launched in 2023 and is now the second-largest L2 chain after Arbitrum. Base was built with OP Stack technology from OP Mainnet, which powers 90% of optimistic rollups.
Pros and Cons of Optimistic Rollups
- More efficient than ZK rollups
- Ultra low gas costs
- Stronger compatibility with Ethereum
- Funds can be withdrawn after seven days due to the challenge period.
- Lower privacy compared to ZK rollups.
ZK-Rollups (Zero-Knowledge Rollups)
Unlike Optimistic rollups, ZK rollups don’t trust any transaction until verified. They assume that all transactions are false until approved by validators via so-called zero-knowledge (ZK) proofs. The latter enable one party to convince another party that a statement is true without revealing the statement itself.
Thanks to this method, crypto ZK rollups validate all transactions without revealing their details. After validation performed with advanced cryptographic methods, validators batch all transactions into rolls and then record them on Ethereum.
ZK rollups offer an extra layer of privacy compared to other scaling solutions, but they require specialized hardware to generate validity proofs.
Popular ZK rollups
zkSync Era is a L2 ZK rollup launched in 2023. It has quickly become the most sought-after ZK rollup due to its performance and EVM compatibility.
Starknet uses proprietary technology to scale Ethereum and eliminate intermediaries from the transaction validation process.
Polygon zkEVM launched as a Plasma chain, and introduced its ZK rollup version in 2023.
Pros and Cons of ZK Rollups
- More secure than Optimistic rollups and other L2s
- Faster finality
- Greater privacy and censorship-resistance
- Higher gas costs due to required specialized hardware
- More difficult to achieve EVM compatibility
- More complex for dApp developers
Technical Aspects of Rollups
Now it’s time to explore a few technical aspects of L2 rollups to better understand how they work behind the scenes. The operation of rollups is impacted by the following elements:
Data Availability
Data availability (DA) plays a key role in rollups, as it ensures that transaction data remains visible and verifiable for network participants.
Initially, rollups used to record their block data on Ethereum. However, to avoid congestion and further reduce fees, independent DA layers have been introduced.
The role of DA is to make sure that block producers record their block’s transaction data on the DA layer, which allows everyone to download and access these data blocks. The DA component operates like a sports streaming service, letting anyone experience the event and download the recording.
DA is not responsible for the long-term storage of transaction data; it is focused on publishing it.
Thanks to DA, rollups can free up space on Ethereum and reduce transaction costs while maintaining a high level of trust.
Security Models and Interaction with Layer 1
Unlike other L2s, rollups inherit Ethereum’s security by recording their data on the mainnet. However, their security models differ.
Optimistic rollups use economic incentives and fraud proofs to prevent malicious behavior, allowing anyone to verify transactions during the challenge period. Elsewhere, ZK rollups use advanced cryptographic methods to ensure transaction validity before publishing transaction data on Ethereum. Therefore, ZK rollups incentivize provers who spend high computational power to generate validity proofs.
Both types of rollups use bridges to enable token transfers between Ethereum and their L2 chain. Optimistic rollup users have to wait for seven days when withdrawing, while ZK rollup users benefit from near-instant withdrawals.
Fraud Proofs vs. Validity Proofs
Fraud proofs and validity proofs are the key verification mechanisms that differentiate Optimistic and ZK rollups.
In Optimistic rollups, fraud proofs do the following:
- Assume all transactions are valid unless proven false.
- Require a dispute period of about seven days during which anyone can challenge transactions.
- If a fraud proof is submitted, the rollup pinpoints the problematic transaction and eliminates it.
Optimistic rollups rely on economic security, being more efficient than ZK rollups.
Here is how validity proofs differ:
- Transactions are considered invalid unless proven valid through cryptographic methods.
- ZK rollups use ZK proofs to verify all transactions before posting them on the L1.
Thanks to this approach, validity proofs ensure faster finality and stronger security backed by cryptography.
Gas fees
Although Ethereum’s transaction fees have reduced since their peak in 2021, the network is still relatively expensive due to high demand and limited block space. Both Optimistic and ZK rollups reduce gas costs by executing transactions off-chain.
The fee reduction is mainly achieved with data compression, as rollups post only minimal data to Ethereum.
In 2024, Ethereum introduced proto-danksharding (EIP-4844) as part of the Dencun upgrade, allowing L2s to store data more efficiently. This resulted in a 95% reduction in transaction fees for rollups.
For those unfamiliar, danksharding introduces a new scaling method to Ethereum by dividing it into smaller units called blobs, which serve as containers for transaction and smart contract data. By processing blobs in parallel, the network can boost throughput.
Today, Ethereum transaction costs range between $0.5 and $10, depending on network demand. Elsewhere, rollup transactions cost between $0.001 and $0.1 per transaction, making them suitable for gaming, DeFi, and other Web3 use cases.
Major Rollup Projects and Their Ecosystems
The L2 has become a major sector with the emergence of rollups. Let’s explore a few metrics, after which we’ll analyze a few individual rollup ecosystems.
In March 2025, rollups held $30 billion in TVL, according to L2Beat data, which tracks metrics across 59 rollup projects. TVL peaked in December 2024 at over $55 billion.
On L2Beat, the TVL metric includes three types of assets:
- Canonically bridged – these represent assets bridged from Ethereum to the L2 through its bridge feature.
- Native – native tokens that were issued on the L2.
- External – assets bridged to L2 via non-canonical bridges.
L2Beat data shows that Arbitrum and Base alone account for over two-thirds of the rollups’ total liquidity, while Optimistic rollups account for the lion’s share of TVL, with a share of over 90%.
In decentralized finance (DeFi), an ecosystem of financial applications backed by decentralized networks, rollups play a key role, accounting for 10% of the total value of all assets. Meanwhile, Ethereum has maintained its 50+% share since 2022.
DefiLlama data shows that Base is the largest rollup by TVL, accounting for 34% with $2.8 billion in TVL. It is followed by Arbitrum with $2.6 billion in TVL. Base has been the fastest-growing rollup in DeFi, while Blast—an Optimistic rollup—was one of the main underperformers in 2024, losing a significant share.
In the gaming and NFT sectors, Arbitrum dominates by dApp volume, according to data from DappRadar. Over the past year, Arbitrum has consolidated its position as the dominant gaming L2 with over $30 billion in monthly dApp volume, followed by Base with $22 billion.
Interestingly, ZK rollups like Starknet, zkSync Era and Linea are more active in gaming and NFTs than in DeFi.
When it comes to active users, Growthepie data shows that Base is the only rollup chain with over 1 million daily active addresses. Arbitrum and Taiko come next with over 300,000 active users. Arbitrum was the first rollup to hit the 1 million mark. So far, only Base has managed to achieve and maintain this milestone.
Base also leads in transaction volume, processing over 7.6 million transactions per day as of March 2025. Arbitrum and Taiko handle over 2.3 million daily transactions. Base is the only rollup to ever process 12 million transactions per day. It achieved this milestone in January 2025.
The median transaction fee on rollups ranges between $0.0001 and $0.1. On Arbitrum, it can sometimes spike to $0.1, which is still very cheap compared to Ethereum.
Now, let’s briefly analyze several individual rollups with data from mid-March 2025:
Arbitrum
- Type: Optimistic rollup
- TVL: $11.8B
- DeFi TVL: $2.4B
Arbitrum is one of the largest rollups. It has over 340,000 daily active users and handles over 2.2 million transactions per day.
Stablecoin supply on the network is at $5.6 billion, dominated by USDT and USDC.
According to Artemis data, some of the most active dApps include Reservoir, Uniswap, Lifi, Unishop.ai, and OpenSea.
Arbitrum has the largest DeFi ecosystem, hosting nearly 800 dApps. The largest DeFi apps by TVL are Aave, GMX, and Uniswap. Decentralized exchange (DEX) trading volume was over $1 billion at the beginning of March.
Base
- Type: Optimistic rollup
- TVL: $10.4B
- DeFi TVL: $2.8B
Base is a fast-growing rollup with over 1.5 million daily active users (DAUs) and 7.6 million daily transactions.
Stablecoin supply is at a record $4 billion.
Uniswap is the most popular dApp on Base, with nearly 440,000 DAUs, driven by meme coin activity.
The largest DeFi apps by TVL on Base are Aerodrome – its native DEX, Morpho Blue, and Aave.
OP Mainnet
- Type: Optimistic rollup
- TVL: $3.9B
- DeFi TVL: $490M
OP has about 100,000 DAUs and a daily transaction count exceeding 1 million. Stablecoin supply is at $700 million.
The largest DeFi apps by TVL include Aave, Stargate Finance, and Velodrome.
zkSync Era
- Type: ZK rollup
- TVL: $651M
- DeFi TVL: $141M
zkSync has less than 20,000 DAUs, the lowest in two years. Stablecoin supply on the network is below $80 million.
Top DeFi apps on zkSync include SyncSwap, Aave, and Venus Core Protocol.
Starknet
- Type: ZK rollup
- TVL: $491M
- DeFi TVL: $101M
Starknet has a stablecoin market cap of over $60 million.
Its DeFi ecosystem comprises mostly native projects, including Nostra, Ekubo, Vesu, and Endur.
Linea
- Type: ZK rollup
- TVL: $389M
- DeFi TVL: $150M
Linea has over 30,000 DAUs and a daily transaction count of about 130,000.
Its DeFi ecosystem comprises about 130 dApps, including Stargate Finance, Renzo, ZeroLend, LayerBank, and Mitosis.
Use Cases and Real World Applications
Rollups can be used for any Web3 application. Everything that works on Ethereum works on better on rollups, which are especially relevant for high-demand dApps like gaming, trading, and NFT marketplaces.
Let’s quickly explore the main use cases for rollups:
DeFi
L2 rollups bring efficiency to DeFi apps by boosting transaction speed and reducing costs. For example, DEXs and perpetual trading platforms can handle multiple trades per second at ultra-low costs, improving user experience.
As mentioned earlier, Arbitrum and Base are the two largest L2 players in DeFi, accounting for two-thirds of the total DeFi liquidity on rollups. Uniswap and Aave have quickly expanded on these rollups to support more efficient trading and lending.
On Aave, the largest lending protocol, Arbitrum is the largest non-Ethereum chain with over $800 million in TVL.
NFT Marketplaces and Gaming
Gaming and NFT marketplaces represent another significant market for rollups. Some L2s, such as Immutable X, are focused specifically on gaming use cases. Polygon, Arbitrum, zkSync Era, and Base are also very active in gaming and NFT markets.
Immutable X has one of the largest native gaming ecosystems, which includes Web3 titles like Gods Unchained, Habbo X, Cross the Ages, and Illuvium.
Many popular games, such as World of Dypians, BoomLand, and PlayEmber, are supported on multiple chains, including Immutable X.
Enterprise Use Cases
Enterprise apps, especially those with a large user base and multiple partners, require high throughput and low transaction costs. They can choose between Optimistic and ZK rollups as their underlying blockchain infrastructure. ZK rollups can offer an extra layer of privacy and greater security, while Optimistic rollups are more developer-friendly and customizable.
A good example of enterprise rollup integration is Visa, which has been using Starknet for its self-custodial wallets with the ‘account abstraction’ feature to offer automated payments.
Interestingly, although Optimistic rollups currently dominate the L2 space with over 90% of TVL and active users, Ethereum co-founder Vitalik Buterin expects ZK rollups to win within the next decade as ZK technology improves. In fact, he believes al lrollups will be ZK, although it will take a lot of infrastructure and prover optimization to get there.
Challenges and Limitations of Rollups
Rollups do a great job at scaling Ethereum, but they are not without challenges. Here are some of the key concerns and limitations:
Data availability concerns
Rollups are modular chains that separate execution, settlement, consensus, and data availability. Most L2s use Ethereum’s native DA layer, but some rollups choose to rely on external DA services like Celestia, Polygon Avail, or EigenLayer.
However, external resources introduce additional trust assumptions, and many argue that these may not be worth the risk.
Withdrawal delays in Optimistic rollups
The biggest drawback of Optimistic rollups is the mandatory withdrawal period of seven days, which prevents users from exiting rollups whenever they choose to.
Some third-party services, like Hop Protocol and Across, allow users to bridge funds instantly, but they charge fees.
Complexity of ZK-rollup technology
ZK rollups use advanced cryptographic mechanisms, which make them more complex compared to Optimistic rollups and other L2s. The complexity of ZK rollups in understanding and implementing the technology may hinder adoption.
Centralization risks
One of the biggest problems of rollups is centralization. L2s inherit the security of Ethereum – a well-established chain backed by a global network of thousands of nodes and over one million stakers.
However, as we mentioned earlier, transactions are batched by sequencers, and many L2s use centralized sequencers to process transactions.
In 2024, a Linea-based DEX suffered a security exploit that depleted it of $2.6 million worth of ETH. In response, the rollup halted block production and announced plans to decentralize its sequencer network.
Centralized sequencers remain one of the biggest risks of rollups, and they have to gradually prioritize decentralization before aiming for mass adoption.
One of the first Optimistic rollups implementing a decentralized sequencer pool is Metis, which has been working on the design since 2024.
Future of Rollups and Ethereum Scaling
The role of rollups is to scale Ethereum, but the underlying chain is evolving as well. It takes gradual steps to become more efficient and flexible. It started by transitioning from a proof-of-work (PoW) consensus mechanism to the current proof-of-stake (PoS) algorithm.
However, despite recent updates, rollups will continue to play an important part in Ethereum’s medium- and long-term evolution. In 2024, Vitalik Buterin unveiled “the Surge” roadmap for Ethereum, which mentions the goal to achieve 100,000 tps. The roadmap doesn’t undermine the role of L2s. On the contrary, rollups are expected to continue to contribute to Ethereum’s scaling effort.
With the introduction of the EIP-4844 update as part of the broader Dencun upgrade, Ethereum allows nodes to store data temporarily for over two weeks, which improves data availability for rollups and cuts transaction fees by over 95%.
At the beginning of 2025, Buterin reiterated the important role of rollups, calling for the community to double down on L2s.
He stated:
“One possible shortcut for scaling is to give up on L2s, and do everything through L1 with a much higher gas limit (either across many shards, or on one shard). However, this approach compromises too much of the benefits of Ethereum’s current social structure, which has been so effective at getting the benefits of different forms of research, development and ecosystem-building culture at the same time.”
Therefore, Ethereum will continue to scale primarily through L2s, but they have to improve security and speed up deposit and withdrawal time. Meanwhile, rollups will face no competition from sidechains and state channels because they have become the standard for Ethereum scaling.
VanEck expects L2s to become a $1 trillion market by 2030, highlighting their impact on the Ethereum ecosystem.
Rollups are here to stay even when Ethereum fully implements sharding and boosts its TPS capacity. Unlike sharding, L2s foster independent ecosystems within Ethereum and contribute to a more diverse culture.
FAQs
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References
- Danksharding architecture (James Bachini)
- L2 TVL (L2Beat)
- DeFi Rollup TVL (DefiLlama)
- L2 DApp Volume (DappRadar)
- L2 Daily Active Addresses (Growthepie)
- L2 Daily Transactions (Growthepie)
- L2 Median Transaction Fees USD (Dune)
- Arbitrum DEX Volume (Artemis)
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