Layer 2

What Is Layer 2?

Layer 2 refers to a secondary protocol or framework built on top of an existing blockchain network, known as Layer 1. 

Because the second layer operates on top of the base chain rather than replacing it, Layer 1 continues to provide the underlying security while Layer 2 handles the processing load. Transactions can take place off-chain and are later settled or verified on the main chain in batches, reducing congestion and lowering fees for users.

How Layer 2 Works

Layer 2 protocols create a secondary processing environment where blockchain transactions and processes can occur independently of the main chain. Once a batch of activity is complete, a summary or proof is submitted back to Layer 1 for final settlement.

This design means the main chain doesn't require any structural changes. The second layer is simply added on top, enabling high throughput without affecting the security guarantees of the underlying network. In practice, Layer 2 solutions can process tens of thousands of transactions per second, compared to the much lower capacity of Layer 1 chains alone.

Types of Layer 2 Solutions

Rollups

Rollups are the most widely adopted Layer 2 approach on Ethereum. They bundle many transactions together off-chain and submit compressed data or a cryptographic proof back to the main chain.

By late 2026, rollups collectively hold over $33 billion in total value locked.

State channels 

Sidechains

Why Layer 2 Matters

In practical terms, Layer 2 networks have made it significantly cheaper for users to interact with decentralized applications, send stablecoins, and trade on decentralized exchanges.