As blockchain technology continues its climb into mainstream usage, Layer 2 (L2) solutions are gaining considerable traction. The activity on these blockchain networks is currently near its all-time high, evident from the total value locked in them (see chart below).
With more and more projects leveraging Layer 2 solutions, understanding which ones hold the most promise can be a daunting task. That’s why we’re here to help! In this article, we’ll explore what we believe to be the five best L2 crypto projects in 2023 and delve into their potential as investment opportunities.
But let’s start with some basic understanding… 👇
What is Layer 2 in Crypto?
Layer 2 (L2) refers to secondary blockchain networks designed to address some of the key limitations that exist in traditional Layer 1 (L1) blockchains, like Bitcoin or Ethereum. These limitations primarily revolve around three things:
- Scalability
- Transaction speed
- Cost
To put it simply, Layer 1 blockchains often struggle to handle a large number of transactions quickly, which can drive up the transaction cost significantly. This is where Layer 2 solutions come into play.
How do Layer 2 blockchains solve Layer 1 issues?
As mentioned above, L2 solutions address the issues of scalability, cost and transaction speed. Here is how they do it.
Addressing scalability
Scalability refers to the network’s capacity to process transactions. Layer 1 blockchains have a limited capacity, which can cause congestion and delays when too many transactions are done simultaneously.
L2 solutions enhance scalability of L1 blockchains by moving the majority of transactions off the main blockchain (Layer 1) and processing them separately, allowing for more transactions to be handled simultaneously.
An example of this is Polygon, which helps enhance Ethereum‘s scalability by offloading transactions onto its own “sidechains”.
Addressing transaction speed and cost
Transaction speed and cost are often interconnected. On a Layer 1 blockchain, the more you’re willing to pay for a transaction, the faster it will be processed. This is because miners, who validate transactions on the blockchain, prioritize transactions with higher fees. This means that users who don’t wish or can’t afford to pay high fees end up waiting longer for their transactions to be processed.
Layer 2 solutions offer a workaround by batching transactions together off-chain and then committing the final state to the underlying L1 blockchain. This approach significantly reduces individual transaction costs and speeds up the overall transaction processing time.
For instance, Optimism enhances Ethereum‘s transaction speed and reduces costs by batching multiple transactions off-chain before settling them on the Ethereum network.
Why are Layer 2 protocols important?
To reinforce your understanding of why Layer 2 solutions are important, let’s go over the main benefits these bring into the crypto space:
- Increased Scalability: They allow a much larger volume of transactions, thus enabling more extensive use of blockchain applications.
- Lower Fees: L2 solutions typically offer significantly lower transaction costs, making micro-transactions and frequent transactions more feasible.
- Speed: Transactions on Layer 2 solutions are faster, providing near-instant confirmations, improving user experience.
- Interoperability: Many Layer 2 solutions facilitate easy interaction between different blockchains, enhancing the overall usability of the crypto ecosystem.
- Preserving Decentralization: L2 blockchains enable the network to scale while maintaining the decentralization and security features of the underlying Layer 1.
5 Best Layer 2 Crypto Projects in 2023
So, what are some of the most promising Layer 2 projects to keep an eye on in 2023? Let’s look at our top 5 picks. Please note, the metrics provided are as of June 2023. It’s essential to do your own research and make informed decisions when investing in cryptocurrencies due to market volatility.
1. Arbitrum (ARB)
Arbitrum is an innovative Layer 2 solution developed by Offchain Labs that utilizes Optimistic Rollup technology to substantially scale Ethereum’s capabilities. Its unique benefit lies in the combination of interoperability with Ethereum and efficient handling of smart contracts, which allows for a much more cost-effective and swift operation, while maintaining compatibility with Ethereum’s tooling and infrastructure.
Arbitrum uses a mechanism called Advanced Optimistic Rollup to offer more scalability while minimizing the data needed on-chain. It is designed to process up to 4,500 transactions per second. Arbitrum’s current TVL sits at $5.31B, making it the most active Layer 2 solution on the market.
Arbitrum (ARB) Tokenomics
| ARB Price | $0.9447 |
| Trading Volume 24h | $149M |
| Market Cap | $1B |
| Circulating Supply | 1,275,000,000 ARB |
| Total Supply | 10,000,000,000 ARB |
| Market Rank | #17 |
Arbitrum (ARB) Price Predictions
According to the predictions from DigitalCoinPrice, they anticipate the average price of ARB to be $2.03 in 2023, $3.32 in 2025, and $9.66 in 2030. On the other hand, as per Priceprediction.net, they forecast a lower average price for ARB, with $1.13 in 2023, $2.33 in 2025, and a significant increase to $16.82 in 2030.
Comparing the two predictions, DigitalCoinPrice expects a gradual but relatively conservative growth in ARB’s price over time. In contrast, Priceprediction.net suggests a lower starting point in 2023 but envisions a more substantial increase in value by 2030. It’s important to note that these predictions are speculative and subject to various factors that can influence cryptocurrency prices.
2. Optimism (OP)
Optimism is a Layer 2 solution that harnesses the power of Optimistic Rollups, providing a scalability solution for Ethereum. Its unique selling point is the almost identical Ethereum Layer 1 experience it provides to developers, as it supports the full spectrum of smart contracts on Ethereum while significantly reducing transaction fees and enhancing transaction speeds.
Optimism (OP) Tokenomics
| OP Price | $1.10 |
| Trading Volume 24h | $71M |
| Market Cap | $709M |
| Circulating Supply | 4,294,967,296 OP |
| Total Supply | 4,294,967,296 OP |
| Market Rank | #36 |
Optimism (OP) Price Predictions
According to DigitalCoinPrice’s predictions, they estimate that the average price of OP will be $2.20 in 2023, $3.81 in 2025, and $11.23 in 2030. On the other hand, Priceprediction.net has a different forecast, suggesting an average price of $1.42 in 2023, $3.19 in 2025, and a significant increase to $19.84 in 2030.
Comparing the two predictions, DigitalCoinPrice expects a gradual but relatively conservative growth in OP’s price over time, with moderate increases between each milestone year. In contrast, Priceprediction.net offers a lower initial price prediction in 2023 but foresees a more significant surge in value by 2030, with a considerable jump from the previous years.
3. Polygon (MATIC)
Polygon, previously known as Matic Network, is a multifaceted Layer 2 scaling solution for Ethereum. Its unique advantage is its framework for building interconnected blockchain networks, integrating with Ethereum for security and liquidity while offering faster, lower-cost transactions, and supporting a variety of consensus mechanisms. This flexibility allows developers to select the most appropriate solution for their needs.
Polygon Tokenomics
| MATIC Price | $0.5736 |
| Trading Volume 24h | $551M |
| Market Cap | $5B |
| Circulating Supply |
10,000,000,000 MATIC
|
| Total Supply | 10,000,000,000 MATIC |
| Market Rank | #12 |
Polygon Price Predictions
According to DigitalCoinPrice’s predictions, they anticipate the average price of MATIC to be $1.22 in 2023, $1.96 in 2025, and $5.75 in 2030. On the other hand, as per Priceprediction.net, they forecast a lower average price for MATIC, with $0.75 in 2023, $1.50 in 2025, and an increase to $10.20 by 2030.
Comparing the two predictions, DigitalCoinPrice expects a gradual and moderate growth in MATIC’s price over time. The prices projected by DigitalCoinPrice are generally higher than those from Priceprediction.net. Meanwhile, Priceprediction.net offers a more conservative estimate, with lower prices in 2023 and 2025, but predicts a higher value for MATIC by 2030.
4. Loopring (LRC)
Loopring is a Layer 2 scaling solution that focuses on decentralized exchanges (DEXs). Using zkRollups, Loopring dramatically improves the speed and reduces the cost of trading on DEXs. Its unique attribute is its focus on enhancing the performance of DEXs, enabling real-time trading with minimal costs, without sacrificing Ethereum’s security.
Loopring Tokenomics
| LRC Price | $0.2113 |
| Trading Volume 24h | $10M |
| Market Cap | $281M |
| Circulating Supply |
1,331,508,925.68
|
| Total Supply | 1,373,873,397.44 LRC |
| Market Rank | #94 |
Loopring Price Predictions
According to DigitalCoinPrice’s predictions, they anticipate the average price of LRC to be $0.42 in 2023, $0.75 in 2025, and $2.17 in 2030. On the other hand, as per Priceprediction.net, they forecast a slightly lower average price for LRC, with $0.27 in 2023, $0.57 in 2025, and an increase to $3.71 by 2030.
Comparing the two predictions, DigitalCoinPrice expects a gradual and moderate growth in LRC’s price over time. The prices projected by DigitalCoinPrice are generally higher than those from Priceprediction.net. However, both sources predict a similar trend of increasing value for LRC over the years.
5. Shibarium (SHIB)
Shibarium is a Layer 2 solution built specifically for Shiba Inu (SHIB) to handle its microtransactions. The distinctive benefit is that it offers extremely low transaction fees and fast confirmation times. This makes it particularly attractive to SHIB users, and potentially other microtransaction-heavy projects, due to its cost-effectiveness and scalability.
Shiba Inu (SHIB) Tokenomics
| LRC Price | $0.000006714 |
| Trading Volume 24h | $61M |
| Market Cap | $4B |
| Circulating Supply |
589,349,049,135,300.8 SHIB
|
| Total Supply | 589,590,887,872,247.9 SHIB |
| Market Rank | #18 |
Shiba Inu (SHIB) price predictions
According to DigitalCoinPrice’s predictions, they anticipate the average price of SHIB to be $0.0000136 in 2023, $0.0000225 in 2025, and $0.0000687 in 2030. On the other hand, as per Priceprediction.net, they forecast a slightly lower average price for SHIB, with $0.00000818 in 2023, $0.00001744 in 2025, and an increase to $0.00011974 by 2030.
Comparing the two predictions, DigitalCoinPrice expects a gradual and moderate growth in the price of SHIB over time. The prices projected by DigitalCoinPrice are generally higher than those from Priceprediction.net. However, both sources predict a similar upward trend in the value of SHIB, with significant potential increases by 2030.
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Conclusion – Should you Invest in Layer 2 Crypto Projects?
With the high activity on Layer 2 blockchains, coupled with their innovative approaches to solving the issues of transaction speed, cost, and scalability that plague Layer 1 platforms, these projects present an intriguing opportunity. The highlighted projects – Arbitrum, Optimism, Polygon, Loopring, and Shibarium – each carry unique benefits, catering to diverse needs in the crypto ecosystem. The potential growth and adoption of these Layer 2 solutions could offer promising returns in the dynamic crypto landscape,
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Disclaimer: This article is not financial advice. Always consider your risk tolerance and investment strategy before making any crypto investments and consult with a professional advisor.
