Layer 2 networks, or L2s, are blockchains constructed on high of Ethereum to make transactions sooner and cheaper with out giving up Ethereum’s safety.
As a substitute of processing each transaction immediately on Ethereum mainnet, L2s execute transactions individually and then ship compressed batches of information again to Ethereum. This lets 1000’s of customers share the price of a single settlement transaction. Ethereum describes rollups as methods that transfer execution offchain whereas nonetheless posting information again to Layer 1 for safety.
Fashionable examples embody Arbitrum, Optimism and Base.
How Does a Layer 2 Work?
Most Ethereum L2s use a sequencer to obtain, order and execute consumer transactions.
The sequencer teams many transactions into a batch, compresses them and ultimately submits the required information to Ethereum. Optimistic rollups reminiscent of Arbitrum and Optimism depend on fraud proofs, whereas ZK-rollups use cryptographic validity proofs.
That fundamental construction is why (*2*) can provide considerably cheaper transactions than Ethereum mainnet whereas nonetheless relying on Ethereum for settlement and information availability.
For the reason that Dencun improve, many rollups have posted transaction information via cheaper blobs as an alternative of everlasting calldata, decreasing certainly one of their largest working prices.
How Do Layer 2 Networks Make Cash?
The core enterprise mannequin is comparatively easy:
Customers pay transaction charges → the L2 pays Ethereum and infrastructure prices → the community retains the distinction.
When somebody swaps tokens, transfers ETH or makes use of a DeFi app on an L2, they pay a price to the community.
A part of that price covers execution on the L2. One other half covers the price of posting transaction information again to Ethereum. Arbitrum, for instance, explicitly fees an L1 information price designed to reimburse the entity posting transaction batches to Ethereum.
No matter stays after these prices can develop into sequencer revenue.
Centralized sequencers may probably seize MEV, or most extractable worth, by figuring out the order by which transactions are included. That income mannequin is one motive some L2 tasks are exploring decentralized or Ethereum-based sequencing. A earlier rollup decentralization push highlighted that Arbitrum and Base had already generated substantial income from centralized sequencers.
Income Can Additionally Be Shared With a Bigger Ecosystem
Some L2s function underneath revenue-sharing agreements.
Optimism’s Superchain, for instance, requires OP Chains to contribute the better of 2.5% of chain income or 15% of onchain revenue to the Optimism Collective. Revenue is outlined as price income minus Ethereum L1 gasoline prices.
Meaning a community reminiscent of Base can generate cash from its personal exercise whereas additionally sending a part of its economics again to the broader ecosystem.
One necessary distinction is that L2 income doesn’t mechanically stream to token holders. A community can generate hundreds of thousands in sequencer charges whereas its governance token offers no direct declare on that revenue.
