This is a very exciting yet speculative time in the crypto world. Paradigms continue to shift causing new narratives to develop simultaneously. The new narrative on the scene are Layer-2 scaling solutions, especially after the Ethereum merge announcement that is set to take place before EOY.
What's so special about the merge and why is it taking place? Some may ask.
Ethereum currently runs on a PoW (Proof-of-Work) network which is causing network congestion that results in lengthy transaction finality. It is also consuming a high amount of energy. This merge is suppose to introduce Ethereum to the PoS (Proof-of-Stake) consensus which reduces energy use and also allows the network to improve the amount of transactions it can execute at once. The goal is to be able to process 100,000 transactions in the same instance. This also helps Ethereum introduce the sharding mechanism which will help with throughput and scalability.
What is a L2?
A L2 is a Layer-2 scaling solution for Ethereum that allows transactions to happen off of the Ethereum Layer-1. L2's mainly focus on scaling which includes very low fees! This is a relief for those who complain about the current gas fees on the main Ethereum network. This also allows users to still use applications that were built on the Ethereum Virtual Machine. There are a few Layer-2's that we will go over that are receiving high anticipation, volume, and traffic!
Optimism
Optimism in the second-largest in TVL amongst the other L2's. They have an appealing UX and also have a very low fee rate. In the last 7 days, they have had about a 35% increase of TVL. They also released a token airdrop in May which started the leg-up. The token is performing well thus far. This is interesting to see because Optimism has great protocols and they are interchangeable with one another.
A few protocols that stand out and are attracting mass liquidity is Synthetix, a derivatives liquidity protocol and Velodrome, which is a AMM based on the Solidly protocol that was launched on Fantom. AAVE has recently implemented new features on Optimism driving more use cases for the $sUSD token on Synthetix which I think will help drive TVL. These protocols are essential building blocks at the forefront for the chain and they continue to develop new use cases that can help leverage investments. I think Optimism is a long-term player and can possibly become the "go-to" L2.
Arbitrum
Arbitrum is leading the L2 pack in TVL. This chain has great applications and use cases also. They do not have a token yet, but they are scheduled to release one following an airdrop in the near future. Some of the prominent protocols on Arbitrum are GMX, a decentralized spot and perpetual exchange, and the recently launched Radiant Capital which is a omnichain money market. Radiant is up 282% in TVL since it's launch 7 days ago! This is highly impressive and I'm curious to see how it will continue to perform. Curve Finance is also a key player being in the Top 3 protocols by TVL.
Arbitrum recently introduced "Nova" which is a separate Arbitrum chain. This chain was targeted for developers to create gaming and social apps while the mainnet continues to push DeFi and NFT's. This is a good way to separate the use cases by chain but it could also dilute the Arbitrum network as a whole. It will be interesting to see how Arbitrum's token perform and how they will maintain their longevity.
Metis
Fun-Fact: Vitalik's mom helped create it and Vitalik has helped with the code. Metis is a fork of Optimism that offers very low fees, faster withdrawals to Ethereum's L1, native data storage, and more. They currently have the lowest fees compared to the other L2's at this moment.
This chain is doing very impressive things and I have been keeping a close eye on their growth. They have a token that has hit an ATH of $325 and is currently trading around $34 USD. Metis has birthed the creation of something called a DAC (Decentralized Autonomous Companies). This is essentially a DAO that allows users to collaborate to perform network actions as well. I believe Metis has potential in the long run if they continue to integrate solid use cases and introduce applications that are widely used across other networks.
Conclusion
All in all L2's are on the rise and there are many more that we didn't go over. I believe this narrative will play out for some time so I am taking advantage of the present opportunities. It will be interesting to see how these L2's continue to scale moving forward!