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Layer-2 Networks Emerge as the Foundation of a More Expansive DeFi Ecosystem
- Ethereum’s dominance has led to significant challenges for DeFi protocols as it has limitations in terms of transaction throughput and scalability.
- The DeFi industry has been quick to innovate, giving birth to a number of alternative, Layer-2 networks that sit above Ethereum, enhancing its scalability by processing transactions off-chain.
- Some of the most prominent L2s include Polygon, Fuse Network, Optimism, Base, and Coti, which have shown incredible potential, helping Ethereum to scale to support hundreds of thousands of transactions per second and paving the way for DeFi to take on the traditional financial world.
- Polygon is the creator of a multichain ecosystem that provides several L2s designed to scale Ethereum, utilizing zero-knowledge rollups as the basis of its scaling solution, facilitating rapid, private transactions with much lower gas fees than the main Ethereum network.
- Fuse Network is the creator of an infrastructure network for crypto and fiat payments, focused on enabling business-to-business and business-to-consumer transactions without borders. Its upcoming Ethereum-based ZK-proof L2 relies on the considerable capabilities of the Polygon Chain Development Kit, which forms the basis of its highly efficient transaction capabilities.
- Optimism scales Ethereum to a peak of 4,000 TPS, meaning transactions are processed 26-times faster than the mainnet, with gas costs reduced by 90% or more.
- Base is built atop of the OP stack and leverages optimistic rollup as the basis of its rapid transaction processing. It can achieve a maximum throughput of 2,000 TPS, meaning near-instantaneous transaction processing, and gas fees are reduced by up to 95% compared to the costs of transacting on Ethereum.
- Coti is a Layer-2 solution for Ethereum, supporting more affordable transactions that leverage Ethereum’s unparalleled security and interoperability while ensuring maximum privacy for users, with a throughput that supports a whopping 100,000 TPS.
- Layer-2 networks are rapidly emerging as the new foundation of the DeFi ecosystem, helping every protocol to converge into a larger, more expansive ecosystem that is better suited to support the masses and unlock new opportunities for growth.
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