Ethereum Layer-2 Locked Reaching ATH around $6 Billion

The total value locked in the Ethereum Layer-2 network has soared to a peak of $6.13 billion, which means it has jumped 13.26% in the last seven days. This is because the price of gas on the Ethereum network continues to rise and DeFi is experiencing rapid adoption.

Arbitrum and dYdX Lead

L2beat, an analytics and research website on Ethereum L2 scaling, shows the number of Ethereum L2 TVL ross networks from August 24 – November 21, 2021, ranging from optimistic rollup to ZK rollup. Combined, they earned an estimated $6.13 billion as of press time, with Arbitrum, an optimistic rollup, and dYdX, a decentralized derivatives exchange, leading the board with $2.67B and $975M, respectively.

TVL's growth follows the demand for sidechain solutions as they offer lower gas costs and higher throughput. The Defi adoption has accelerated this year, driving massive traffic to the Ethereum network and resulting in a spike in gas costs.

Ethereum is a pioneer in the DeFi space, with hundreds of projects built on top of the network. However, the heavy workload on its ecosystem has fueled massive grid congestion and rising gas prices, hampering its leadership in the space. Expensive transactions and low throughput make institutional investors switch to other networks such as Solana (SOL) and Avalanche (AVAX).

What is a Layer 2 Solution?

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

Sidechain was born as a scaling solution that reduces gas costs and increases transaction speed. They achieve this by executing Ethereum transactions on the layer-2 platform while storing the original data of those transactions within the layer-1 (Ethereum mainnet), all through the power of smart contracts.

Two popular types of sidechains are optimistic rollups and ZK rollups. The two technologies are very similar – they store data off-chain to reduce network workloads. Some minor differences were found in the security models and the way they generate evidence of fraud.