Layer Two Protocol
Sovereign Assets • Layer 1s • Payment Networks
off-chain scaling solution
A Layer Two protocol is a blockchain solution built on top of a Layer One network to enhance its scalability and efficiency. It handles most of the transaction processing off-chain and periodically settles the final state on the main blockchain. This reduces congestion, lowers fees, and speeds up performance. Examples include Polygon for Ethereum and Songbird for the Flare Network.
Use Case: A DeFi user wants to swap tokens on Ethereum but faces $50 gas fees. By using Arbitrum (a Layer Two protocol), they complete the same swap for under $1 while still benefiting from Ethereum’s security, as the final transaction state is settled on the main chain.
Key Concepts:
- Layer One Protocol — The base blockchain that Layer Two solutions build upon and settle to
- Rollups — A type of Layer Two that batches transactions and posts compressed data to Layer One
- Sidechains — Independent chains that connect to the main network but operate with their own consensus
- Settlement Finality — The point where off-chain transactions are confirmed on the main blockchain
Summary: Layer Two protocols solve blockchain scalability by moving transaction processing off the main chain while inheriting its security. They enable faster, cheaper transactions and are essential for bringing blockchain applications to mainstream adoption without sacrificing decentralization or security guarantees.