Ethereum Layer 2: A Simplified Overview

Common Ethereum Layer 2 projects include Optimism, Arbitrum and zkSync. Tokens from some of these projects, such as ARB (Arbitrum) and OP (Optimism), have been available for trading. This article aims to explain the concept of Layer 2 in straightforward terms.

As blockchain technology continues to evolve, Ethereum has established itself as a leader in smart contracts and decentralized applications. However, its growing popularity has brought about challenges, particularly in terms of scalability and transaction costs. To address these issues, Layer 2 (L2) solutions were introduced, designed specifically to navigate these hurdles.

What is Layer 2 (L2)?

Layer 2, often abbreviated as L2, refers to a secondary framework or protocol built atop the existing blockchain (Layer 1 or L1). The primary objective of L2 solutions is to increase transaction throughput and reduce associated costs, all while maintaining the security and decentralization properties of the main chain.

The Basics: Layer 1 vs. Layer 2

Layer 1 (L1) is the foundational blockchain layer. Think of Ethereum or Bitcoin; these are L1 blockchains. They form the bedrock upon which L2 solutions are constructed. L1 handles the core consensus, maintains the network’s security, and records all transactions.

Layer 2 (L2), on the other hand, operates atop L1 and can process transactions off-chain or in a more scalable manner. The results are then settled back onto the main chain, ensuring the security and immutability of the primary blockchain.

The Promise of Layer 2

Lowered Transaction Costs: L2 solutions, by handling numerous transactions off-chain and consolidating them into one L1 transaction, can markedly decrease the expense of each transaction.

Improved Transaction Capacity: Compared to conventional L1 blockchains, L2 solutions are capable of processing a greater volume of transactions every second (TPS), tackling a primary concern in the world of cryptocurrency.

Maintained Security: Even though transactions might be processed off-chain, they eventually settle on the main chain, inheriting the security properties of L1.

Diving Deeper: Types of Layer 2 Solutions

1. Rollups: These are a popular L2 solution where transactions are processed off-chain and then bundled or “rolled up” into a single transaction that’s recorded on L1. There are two main types of rollups:

Optimistic Rollups: Transactions are assumed to be valid unless proven otherwise. If a transaction appears suspicious, it can be challenged and verified.

Zero-Knowledge Rollups (ZK-Rollups): These use cryptographic proofs to validate transactions off-chain. Only the proof, which is much smaller in size, is submitted to L1.

2. State Channels: These are off-chain corridors where multiple transactions can occur between participants. Once the series of transactions is complete, the final state is settled on the main chain.

3. Plasma: A framework that allows for the creation of child chains branching from the main chain. These child chains can operate independently and report back to the parent chain periodically.

Layer 2 in Action

Several projects are pioneering the L2 space:

Arbitrum: An Optimistic Rollup solution aiming to make Ethereum transactions more cost-effective.

Optimism: Another Optimistic Rollup, focusing on scaling Ethereum and enhancing its overall efficiency.

zkSync: A ZK-Rollup platform that offers a scalable, low-cost solution for Ethereum transactions.


Layer 2 solutions represent a promising step forward in addressing the scalability and cost issues associated with current blockchain networks. As these solutions continue to evolve and mature, they could pave the way for broader adoption of blockchain technologies and a more efficient decentralized future.

Disclaimer & Copyright Notice: The content of this article is for informational purposes only and is not intended as financial advice. Always consult with a professional before making any financial decisions. This material is the exclusive property of Blockchain.News. Unauthorized use, duplication, or distribution without express permission is prohibited. Proper credit and direction to the original content are required for any permitted use.

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Arbitrum Alert: Whale Moves Nearly 3 Million ARB Tokens into Binance

A transaction involving ARB tokens has caught the attention of the cryptocurrency onchain analysts. ARB is the native token of Arbitrum network.

A whale with address 0xe04d0484ffb9e0b4567794008e5b8a7c7f6b7e6d transferred 2,689,046 ARB tokens into Binance just a few hours ago. 


Source: arbiscan

Just 3 days ago, the same whale sent 2 Million ARB to Binance.

The whale address has 6,750,000 ARB tokens, equivalent to $8.34 million. These ARB token are withrawn from Binance, OKX, and Coinbase Prime between March 29 and May 17, 2023. The average price of these tokens at the time of withdrawal was $1.235 each, according to onchain analyst EmberCN.

If these tokens were to be sold at the current market rate, the whale would incur a loss of approximately $850,000.

Key Transaction Details

The transaction was confirmed on the blockchain with the hash 0x87a286a17c0f1e792a5e46f4f38e62b2e3aa2c6c0b81cb65cea0a43cb5bec20a.

The funds were transferred from address 0xe04d0484ffb9e0b4567794008e5b8a7c7f6b7e6d to address 0x3c2efda2a31660cbf0645d1d9cd442a1588723d4.


Source: arbiscan

It was successfully processed in block 127878480, with 1204 Level 1 block confirmations. The timestamp indicates that the transaction occurred at 07:27:33 AM UTC on September 4, 2023.

Market Implications

While the reasons for these large transactions remain unclear, they do raise questions about market sentiment surrounding ARB tokens. The activity comes amid a period of market uncertainty, where large moves into crypto exchanges by single entities can have a negative effect on token prices and investor confidence.

Recenly, Blockchain.News reported “Arbitrum Proposes 75 Million ARB Short-Term Incentive Program”.

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Arbitrum Proposes 75 Million ARB Short-Term Incentive Program

Arbitrum ($ARB) Incentives Working Group released a proposal outlining a Short-Term Incentive Program. The initiative aims to distribute up to 75 million ARB tokens from DAO-funded incentives to active protocols on the Arbitrum network. The proposal is the result of multiple community calls and workshops involving various stakeholders.

Objectives and Rationale

The program is designed to achieve four primary goals:

Support Network Growth: Accelerate the distribution of incentives to Arbitrum decentralized applications (dApps) to foster network and ecosystem expansion.

Experiment with Incentive Grants: Uncover new incentive strategies to boost user engagement, transaction volume, and liquidity.

Find New Models for Grants and Developer Support: Generate maximum activity on the Arbitrum network.

Create Incentive Data: Collect data on the effectiveness of distributed grants to inform future incentive programs.

The proposal aims to increase volume, transactions, users, and liquidity in the Arbitrum ecosystem. It serves as an experimental program with the primary objective of promoting innovative incentive strategies while ensuring basic safeguards.

Financial and Operational Details

The program will have a budget of 75 million ARB earmarked for incentive grants. Additional allocations include:

A 37,000 ARB operational budget for community and project facilitation.

20,000 ARB to @tnorm for community moderation.

12,000 ARB for PL-ARB Grants Safety Multisig.

5,000 ARB for delegate contributions.

Eligibility and Evaluation Guidelines

Grantees are required to meet specific criteria, including providing a spending plan, pro forma, and the grant’s objective. They must also commit to sharing data on distributions, transactions, and key metrics like daily Total Value Locked (TVL), transaction volumes, and unique addresses.

The program offers four grant categories:

Beacon Grants: Up to 200K ARB for protocols live on Arbitrum for at least two months and meeting specific TVL or volume criteria.

Siren Grants: Up to 750K ARB for protocols live for at least four months and meeting higher TVL or volume criteria.

Lighthouse Grants: Up to 2M ARB for protocols live for at least six months and meeting even higher TVL or volume criteria.

Pinnacle Grants: Over 2M ARB for protocols live for at least 12 months and meeting the highest TVL or volume criteria.

Timeline and Approval Process

The program will undergo a three-week approval process across two cycles, each consisting of an application period, review period, and voting period. The first cycle begins on September 15, 2023, with funds distributed by October 6, 2023. The second cycle commences on October 6, 2023, with funds distributed by October 27, 2023.

Outstanding Questions

The proposal addresses concerns about exceeding the budget and plans for excess funds. If the budget is exceeded, funding will be allocated on a first-come, first-serve basis. Excess funds will be returned to the Arbitrum Treasury.


The Arbitrum Short-Term Incentive Program aims to catalyze network growth and user engagement through a one-time, community-driven initiative. With specific eligibility criteria and evaluation metrics, the program seeks to ensure transparent and effective distribution of incentives. The initiative offers a glimpse into Arbitrum’s strategic approach to fostering a dynamic ecosystem.

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Arbitrum Foundation Launches its First Grant Program to Foster Ecosystem Growth

The Arbitrum Foundation has announced the launch of its inaugural grant program, marking a significant step towards fulfilling its mission of fostering ecosystem growth. The Foundation’s grant program is designed to align with partner projects and educational initiatives, both online and in-person, as stated in the Foundation’s Bylaws.

The Foundation Grants, is run by the Arbitrum Foundation in support of the Arbitrum DAO. It is important to note that this program is not intended to replace any DAO-driven grants program. Instead, it is designed to meet the requirements set out in the Foundation’s mission statement, focusing on achieving specific objectives and areas of opportunity identified by the Foundation.

The Foundation Grants is primarily focused on ecosystem growth, issuing grants towards areas where increased development could potentially yield a greater return to the Arbitrum ecosystem. All grants issued through this program are intended to improve adoption, create stronger technical structures, and build sustainable communities. These grants will be milestone and KPI based, established in collaboration with each applicant.

The Foundation Grant Program will operate in distinct phases, each designed to attract applications from specific areas within the Arbitrum ecosystem. The initial phase emphasizes decentralized applications and infrastructure for Arbitrum Nova and Arbitrum One. Projects that do not meet the criteria for the current phase are encouraged to submit a proposal to the ArbitrumDAO or revisit the page at a later time when new phases are announced.

Applications chosen to receive a grant from the Foundation will have the opportunity to be showcased. The Foundation plans to include major activities of this program under the transparency report as stated in AIP 1.1. The Foundation Grants Program is an ongoing initiative, with a rolling grant acceptance window allowing projects with grant requests to submit them as needed. Phases do not have defined “end dates” but can be expected to last for roughly three months or until the Arbitrum Foundation believes the objectives for that phase have been achieved.

The Arbitrum Foundation is determined to support projects within the Arbitrum ecosystem through the Foundation Grants Program. By working together, they aim to foster growth, drive adoption, and build a thriving community, contributing to and shaping the future of the Arbitrum ecosystem.

Grant programs initiated by foundations are a prevalent strategy aimed at amplifying ecosystem influence and enhancing brand visibility. On July 18, 2023, the XRP Ledger Foundation unveiled the recipients of its fifth cycle of XRPL Grants. The Foundation has committed over $1.6 million in total funding to 15 innovative projects, demonstrating its ongoing commitment to fostering groundbreaking advancements within its ecosystem.

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Multichain Reports Unusual Outflows Worth Over $100M

In the past 12 hours, a large amount of assets has unusually flowed out from Multichain. These assets, which include a variety of cryptocurrencies, have been transferred to the new address: 0x1eed63efba5f81d95bfe37d82c8e736b974f477b. At the time of writing, the net worth of all assets transferred is $102,834,504.

The assets that have flowed out are approximately as follows:

  1. From Fantom: 11.91 million DAI, 13,146 ETH, 10.1 million USDC, 64 million USDT, 52 BTC
  2. From Arbitrum: 2,891 WETH, 8.7 million USDC, 7.5 WBTC
  3. From BNB Chain: 209k USDC, 50.8 BTCB
  4. From Avalanche: 2.38 million DAI, 33.76 WBTC.e
  5. From Cronos: 667.4 WETH, 9 million USDC, 616k DAI
  6. From Polygon: 19.95k USDC, 5,582 WETH, 7.05 WBTC
  7. From Moonbeam: 237.6k USDC
  8. From Optimism: 37k USC, 21.91 WBTC, 10.36 million DAI
  9. From Ethereum: 15k DAI

On July 7th, the Multichain team announced via Twitter that the assets locked up on the Multichain MPC address had been moved abnormally to an unknown address. The team was unsure of the cause and began an investigation. They recommended that all users suspend the use of Multichain services and revoke all contract approvals related to Multichain. They also announced that the Multichain service had been stopped, and all bridge transactions would be stuck on the source chains. They did not provide a confirmed time for resuming the service and advised users not to use the Multichain bridging service.

On July 8th, Circle and Tether, two major stablecoin issuers, froze over $65 million in assets that had been transferred from Multichain. This amount represented about half of the assets that were abnormally moved.


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Ethereum Layer 2s See Surge in Popularity in Q1 2023

Ethereum layer 2 networks, including Optimism, Arbitrum, and Polygon, saw a surge in popularity in Q1 2023, according to a report from Web3 development platform Alchemy. The report, titled “Web3 Development Report,” cites data from Dune Analytics and shows that Ethereum users bridged over $635,000 worth of crypto assets to these networks from January to March, a significant increase of 44% over the fourth quarter of 2022 and 518% over the first quarter of 2022.

The growth in bridged assets may have been driven by successful airdrops from Optimism and Arbitrum in Q1 2023, as suggested by the Alchemy report. Additionally, layer 2s saw greater activity from developers, with the deployment of smart contracts related to layer 2s increasing by 160% compared to Q1 2022, despite a 30% decrease from Q4 2022.

Layer 2s have been offered as a solution to Ethereum’s scalability problem, which has been causing high gas fees since as early as 2020. By enabling more transactions to be processed off the main Ethereum network, layer 2s can significantly reduce the fees required to interact with the blockchain. As a result, users are increasingly turning to these new scalability solutions.

This trend is reflected in the broader Ethereum ecosystem, with increased developer interest observed in Q1 2023. According to the Alchemy report, Ethereum software development kits (SDKs) such as Ethers.js, Web3.js, Hardhat, and were downloaded 1.9 million times in the first quarter of 2023, an 8% increase from Q1 2022. Downloads of the MetaMask SDK, a tool used to develop apps that can interact with Ethereum wallet MetaMask, also increased in each month of the first quarter.

The crypto industry is coming off the back of a steep downturn in trading volume and crypto prices during 2022, with scandals like the UST depegging and FTX collapse causing many investors to shy away. However, despite this negative sentiment, users still flocked to these new scalability solutions.

While layer 2s have proven to be a useful tool for improving Ethereum’s scalability, some experts have argued that sharding the Ethereum network will also help to cut down on gas fees. Sharding involves breaking up the Ethereum network into smaller, more manageable pieces, allowing for more parallel processing of transactions. Ultimately, a combination of solutions will likely be necessary to address Ethereum’s scalability challenges and keep up with growing demand.


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Proposal to Return ARB Tokens to Arbitrum DAO Treasury Rejected

A proposal seeking the return of 700 million ARB governance tokens to Arbitrum’s DAO treasury has been rejected by the community after receiving only 14.5% of the total votes. The proposal, called AIP-1.05, was introduced after the Arbitrum Foundation transferred funds without community approval in March. The proposal asked the foundation to return the tokens as a symbolic gesture to demonstrate that the governance holders ultimately control the DAO, not the Arbitrum service provider nor the Foundation.

The proposal was defeated by 118 million votes, representing 84% of the total votes received. Approximately 21 million ARB tokens voted for the proposal, while 2 million tokens abstained. Some community members with large token holdings voted against the proposal, stating that it was a power play that would add an unnecessary step and delay the foundation’s ability to support the growth of the Arbitrum ecosystem.

Arbitrum’s community and its foundation are engaged in a dispute over the foundation’s governance proposal AIP-1, which called for an investment of nearly $1 billion worth of ARB tokens to fund its operations. The foundation later clarified that AIP-1 was a ratification, not a proposal, and that some of the tokens were already sold for stablecoins. The AIP-1 proposal was Arbitrum’s first attempt at governance after its tokens airdrop in early March.

The rejection of AIP-1.05 highlights the challenges faced by decentralized autonomous organizations in achieving consensus among their members. It also highlights the importance of community engagement in the decision-making process and the need for transparency and accountability in the management of decentralized platforms.

Arbitrum’s foundation has released a new set of improvement proposals to reestablish dialogue with the community. The proposals aim to address concerns raised by the community and provide a framework for the platform’s governance going forward. The rejection of AIP-1.05 and the ongoing dispute over AIP-1 demonstrate the need for continued dialogue and collaboration between the community and the foundation to ensure the success and growth of the Arbitrum ecosystem.


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Arbitrum’s Governance Token Return Proposal Rejected

In a bid to re-establish dialogue with the community, Arbitrum’s Foundation introduced a set of improvement proposals after facing community backlash over its governance proposal AIP-1. However, a controversial proposal, AIP-1.05, seeking the return of 700 million ARB governance tokens to Arbitrum’s DAO Treasury, was recently rejected by the community. The proposal was introduced after the Foundation transferred funds without community approval in March.

The rejected proposal aimed to demonstrate that the governance holders ultimately control the DAO, not the Arbitrum service provider nor the Foundation. However, 84% of the total votes received rejected the proposal, with 14.5% of the total votes cast in favor of the proposal and around 2 million ARB tokens abstaining.

The rejection of the proposal has generated mixed reactions from the community. Some believe that the proposal would have added an unnecessary step, thereby delaying the Foundation’s ability to support the growth of the Arbitrum ecosystem. However, others believe that balance is necessary to promote decentralization and progress in the ecosystem.

The rejection of the AIP-1.05 proposal comes amidst a dispute between the Arbitrum community and its Foundation over the governance proposal AIP-1. The latter called for the investment of nearly $1 billion worth of ARB tokens to fund its operations. However, after facing community backlash, the Foundation clarified that AIP-1 was a ratification, not a proposal. It also noted that some of the tokens were already sold for stablecoins.

Arbitrum’s community and Foundation are now at a critical juncture, and it remains to be seen how they will navigate the challenges ahead. With the rejection of the AIP-1.05 proposal, the community has sent a strong message that it is not willing to relinquish control over the DAO’s governance tokens. The Foundation will need to take a collaborative approach and engage in constructive dialogue with the community to address its concerns and promote the growth of the Arbitrum ecosystem.


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