Layer2, the wind has arrived!
Market data shows that OMG surged from $2 to a high of $9.7 over the past 7 days, a maximum increase of 385%.
Unexpected, yet justified.
With the DeFi explosion and Ethereum congestion rivaling Beijing’s Dongsihuan during rush hour, sky-high gas fees, slow transfers... Ethereum's performance severely limits the growth of its DeFi ecosystem.
Etherscan data shows that since June, average Ethereum gas fees have steadily risen from 40 Gwei to above 100 Gwei, peaking at over 700 Gwei on June 11 and 263 Gwei on August 13.
Blockchain blogger David Kajpust tweeted that due to Ethereum’s high fees, DeFi lending protocol Compound may be considering building its project on alternative public chains or Layer 2 blockchains.
OMG Network is a trustless, non-custodial Layer 2 scaling solution designed specifically for value transfers on Ethereum.
On August 19, stablecoin issuer Tether officially launched its USDT stablecoin on the Ethereum scaling project OMG Network—widely seen as the direct catalyst behind OMG’s recent surge.
Additionally, in early August, OMG Network unveiled an Ethereum scaling solution designed for Reddit, preparing to bid for Reddit’s points issuance project.
Besides OMG, other Layer 2-related tokens such as POA, CELR, and LRC have also taken off.
Layer 2—the wind has arrived!
Without sharding or Ethereum 2.0, Ethereum’s performance is already nearing its limit today.
With the constant emergence of DeFi yield farming, DEXs, games, Ponzi schemes, and even the booming stablecoin sector, Ethereum is now overwhelmed. The inefficient network can no longer support smooth operations and low fees for its ecosystem applications.
"Security, scalability, decentralization"—the three cannot all be achieved simultaneously. To solve blockchain’s “impossible trinity,” numerous solutions have emerged, one of which is Layer 2 (second-layer networks).
Layer 2 is often referred to as an “off-chain” solution, primarily aiming to enhance blockchain performance while preserving the decentralized advantages of distributed protocols.
In Ethereum, Layer 2 systems are connected to Ethereum, using it as the base layer for security and finality. By performing computation off-chain, they significantly reduce on-chain data processing—meaning not every transaction needs to be settled on the Ethereum mainnet.
If successful, Layer 2 will enable Ethereum to break through current performance bottlenecks and support a much larger ecosystem. Ethereum’s base layer can focus on security and high-value transactions, while projects built on Ethereum no longer need to worry about exorbitant fees or snail-like speeds—ushering in a new spring for DeFi.
Looking further ahead, combining future PoS and sharding technologies with Layer 1 and Layer 2 could allow Ethereum to achieve exponential growth, meeting the demands of most open finance and dApp use cases—evolving from a “simple calculator” into a true world computer.
Ethereum founder Vitalik Buterin once made a simple calculation, mentioning in an AMA:
If we get 100x from sharding and 100x from Plasma, together they could provide a 10,000x gain in scalability. This would mean the blockchain is powerful enough to handle most applications people want to build.
The vision is beautiful. But the first step toward this dream begins with Layer 2!
Layer 2 Blooms in Full Force
Layer 2 solutions continue to evolve. Currently, the main approaches are:
Representatives: OMG\MATIC\LOOM
Plasma was the earliest solution, marked by Vitalik’s original Plasma whitepaper.
Plasma is a non-custodial sidechain. Compared to regular sidechains, if any error occurs within a Plasma chain, it can be detected, and users can safely exit the Plasma chain, preventing attackers from causing lasting damage.
Plasma achieves scalability by creating child blockchains attached to the main Ethereum blockchain. These child chains enable faster transactions and lower fees. We can execute many complex operations at the sub-chain level and run full applications with thousands of users, requiring minimal interaction with the Ethereum main chain.
The first production-level implementation of Plasma was Loom Network in 2018, using a variant called Plasma Cash, focusing on non-fungible tokens (NFTs) and gaming.
Today, Matic and OMG Network are the most prominent representatives of Plasma, both aiming to scale general-purpose Ethereum transactions. Matic uses a PoS consensus mechanism on its sidechain, while OMG Network follows a similar direction but currently relies on a fixed set of validators.
In June, OMG Network launched the public beta of V1, capable of scaling Ethereum to thousands of transactions per second while reducing transaction costs to one-third.
Representatives: Optimism\Zksync\Loopring
If Plasma was yesterday’s star, Rollup is today’s rising sensation—and Vitalik’s current favorite.
When Tether decided to adopt the OMG Network, Vitalik couldn’t help but recommend Rollup-family solutions to Tether’s CTO.
Rollup solves data availability by storing compressed/batched transaction data directly on the Ethereum blockchain.
Rollup currently splits into two main branches: ZK Rollup and Optimistic Rollup—both considered the most promising Ethereum Layer 2 scaling solutions today.
Optimistic Rollup uses fraud proofs to detect invalid transactions and penalize validators who approve them. zk Rollup uses zero-knowledge proofs (e.g., SNARKs) to prove the validity of Layer-2 transactions, with the proof stored on-chain alongside the transaction data.
The leading force in Optimistic Rollup is Optimism; zkSync has two major competing projects: Loopring (Loopring Protocol) and Matter Labs’ zkSync.
Loopring initially used zk Rollup to build a Layer 2 decentralized exchange and has now entered the Layer 2 payments space with Loopring Pay.
While Loopring focuses on decentralized exchanges, zkSync concentrates on core architecture. Recent news indicates they are about to launch their own governance token.
Representatives: Celer Network, Raiden Network
State channels are entry-level Layer 2 solutions and currently the most widely adopted—for example, Bitcoin’s Lightning Network is a type of state channel.
The design concept involves moving part of the transaction off-chain, changing blockchain consensus from confirming every step to only verifying final outcomes.
Typically involving three steps:
1. Both parties lock the initial blockchain state (e.g., their balances) into a smart contract, functioning similarly to a multi-signature wallet. This ensures funds can only be unlocked and transferred after both parties sign off on updates;
2. The two parties conduct transactions by exchanging state updates (e.g., balance changes) in batches. If both agree, they “sign” a state update, which is then submitted to the smart contract to unlock funds;
3. When transactions are complete, each party submits the final state update to the smart contract. If both submissions match, their blockchain state (e.g., balances) is unlocked—typically different from their initial state.
Celer Network, Raiden Network, Connext/SpankChain, and Liquidity Network all utilize related technologies.
However, as the broader Ethereum ecosystem has largely shifted attention to more flexible scaling solutions like Rollup, state channels have essentially been sidelined.
The Rising Star: Validium
Representative: StarkWare
Among the Rollup-family solutions recommended by Vitalik to Tether’s CTO, there’s a project called StarkWare. However, they don’t actually use ZK Rollup. On Twitter, its founder clarified to Vitalik, concluding that this isn’t truly Rollup.
StarkWare’s scalability technology blends Plasma and Rollup—it moves transaction data off-chain (like Plasma) while using zero-knowledge proofs to batch off-chain transactions. Their zero-knowledge proof method, STARKs, does not require a trusted setup. StarkWare co-founder Eli Ben-Sasson proposed naming this approach “validium.”
Comparison of Layer 2 Technical Approaches
Debates over the pros and cons of various Layer 2 technical approaches persist endlessly.
Alex Gluchowski from Matter Labs created a guide evaluating various Ethereum Layer 2 scaling solutions across multiple dimensions.
Overall, Rollup is clearly the hottest choice among Ethereum scaling solutions.
In contrast, Plasma merely notarizes off-chain data on Ethereum, raising data availability concerns. This leads to poor user experience, prevents true trustlessness, and requires users to go online periodically—severely hindering development.
Rollup addresses these issues exposed by Plasma, providing the same data availability and security as Ethereum, while greatly increasing network throughput and reducing per-transaction costs.
Between the two Rollup branches—ZK Rollup and Optimistic Rollup—the key difference lies in the former using zero-knowledge proofs and the latter using fraud proofs. In terms of scalability, ZK Rollup outperforms Optimistic Rollup. Therefore, purely from the perspective of value transfer and trading, ZK Rollup stands as today’s optimal solution.
Of course, all of the above remains “armchair Layer 2 talk.” Real performance must be judged through practice—and excitingly, a Layer 2 martial arts showdown is just around the corner.
At the end of June, Reddit announced a collaboration with the Ethereum Foundation to bring Reddit Points (an ERC20 token) onto the Ethereum mainnet. They posted a call for developers to submit Ethereum scaling solutions to expand their points rewards system.
Projects were required to submit proposals by July 31 and simulate performance under usage by 100,000 community members. Reddit’s team will review and evaluate all submissions to select the final solution.
Ultimately, 22 scaling solutions were successfully submitted by the following projects: StarkWare, Dragonchain, Matic Network, Solana, Everest, xDai & Splunk, OMG Network, NEAR, Fuel Labs, Raiden, Connext, Arbitrum, Aztec, MatterLabs, Abridged and Kchannels, SKALE, Syscoin, Meter, Dapp Solutions, Hubble Project, Minter, Celer.
Who will become the king of Layer 2? The final decision rests with the Reddit community.
1. The State of Ethereum L2
2. The Battle for Ethereum Layer 2 Scaling: Comparing Four Key Approaches
3. Evaluating Ethereum L2 Scaling Solutions: A Comparison Framework
*TechFlow reminds investors to beware of high-price risks. The views expressed in this article do not constitute investment advice.
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