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.

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Aave to Launch on zkSync with Overwhelming Support from Community

The Aave community has spoken, and the results are in. A proposal to launch the decentralized exchange (DEX) Aave on the zkSync Era Mainnet has received overwhelming support, with over 99% of AAVE tokenholders casting ballots voting in favor of the move.

The proposal, which was first pitched on March 26, outlined plans to launch the third version of the lending and borrowing protocol on the zero-knowledge Ethereum Virtual Machine (zkEVM). The launch will initially be limited to USD Coin (USDC) and Ether (ETH).

The proposal’s success in the “temperature check” stage means that the next steps listed in the proposal will be pursued. This will involve further discussion, followed by risk parameter evaluation and the finalization of the proposal. If successful, the proposal will then be submitted for on-chain governance approval.

While only around 0.02% voted against the proposal, and a further 0.02% abstained from voting, the overwhelming support from the Aave community is a significant milestone for the project. Deploying on zkSync has the potential to introduce new users to decentralized finance, as well as cementing Aave’s position as a premier borrowing platform within the zero-knowledge ecosystem.

The Aave community previously voted to deploy the Aave V3 codebase on zkSync’s v2 Testnet, which was approved in another off-chain vote. With this latest vote, Aave is another step closer to deploying on the zkSync Era Mainnet.

Aave is not the only decentralized exchange looking to leverage the benefits of zkSync. Uniswap is also set to launch on the scaling solution from Polygon after a successful governance proposal was passed.

Aave’s journey to this point has not been without its challenges. In November 2022, the platform changed its governance procedures after it was hit by a $60 million short attack that ultimately failed. However, the project has emerged from this setback with renewed vigor and determination, as evidenced by the overwhelming support for its latest proposal.

Overall, the launch of Aave on zkSync has the potential to be a game-changer for the decentralized finance space, and it will be interesting to see how the project progresses in the coming months.


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Symbiosis Integrates zkSync to Enhance Token Swaps

Symbiosis, a cross-chain automated market maker, has recently integrated zkSync, a layer-2 scaling protocol, to enhance the speed and reduce the fees of token swaps on its platform. The integration allows users to make any-to-any native asset swaps across Ethereum Virtual Machine (EVM) and non-EVM networks without having to switch between different wallets and interfaces.

The decentralized exchange (DEX) was launched in March 2022 and has already processed over $100 million in total transaction volume in stablecoins. It offers single-sided stablecoin pools that provide zero impermanent loss to liquid providers and facilitates “any-to-any” native asset swaps on its platform.

The integration of zkSync aims to make liquidity transition to and from zkSync “secure, fast and cheap.” It also expands the variety of token swaps through the DEX, supporting any-to-any native swaps to and from zkSync. This additional functionality enhances the user experience of value-added services built on top of Symbiosis.

According to Simeon Avramov, co-founder of Symbiosis, layer-2 scaling protocols like Optimistic and ZK-rollups are crucial for various decentralized finance (DeFi) platforms and services. They are lowering the entry barriers in terms of the price per swap and user experience of value-added services built on top. Avramov believes that zero-knowledge rollups could outcompete Optimistic Rollup solutions like Arbitrum and Optimism.

Avramov also emphasizes the importance of cross-chain players and interoperability layers to support zero-knowledge solutions as soon as possible. “ZK represents an inevitable and natural evolution among scaling solutions,” he said.

The integration of zkSync is a significant development for Symbiosis, as it will enhance the speed and reduce the fees of token swaps on its platform. This will attract more users and provide a better user experience. Symbiosis serves over 12,000 unique wallet addresses and has an average of 3,000 daily transactions.

Moreover, the scaling technology is not limited to Ethereum or other smart contract blockchains. The Swiss-based nonprofit ZeroSync Association is currently developing zero-knowledge proof tools that will allow Bitcoin (BTC) users to expedite the process of verifying individual blocks and, eventually, the entire blockchain.

In conclusion, the integration of zkSync is a significant milestone for Symbiosis, as it enhances the speed and reduces the fees of token swaps on its platform. It also expands the variety of token swaps and improves the user experience. The use of zero-knowledge proof technology in scaling solutions is an inevitable and natural evolution, and it is crucial for cross-chain players and interoperability layers to support zero-knowledge solutions as soon as possible.


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Arbitrum Airdrop Boosts zkSync Growth

In recent news, Arbitrum, a layer-2 scaling solution for Ethereum, announced an airdrop of its ARB governance token, which has generated significant hype within the blockchain community. The airdrop is expected to reward eligible receivers with the token by March 23. The hype around the airdrop has helped another layer-2 scaling solution, zkSync, experience significant growth in the last week.

ZkSync, another layer-2 scaling solution for Ethereum, supports nonfungible tokens (NFT), and atomic swaps and transfers of Ether (ETH) and ERC-20 tokens within the Ethereum network. Despite not having a native token or announcing any airdrop, zkSync has seen a surge in the number of addresses bridging to its platform. According to data from crypto on-chain analytic firm Nansen, over 39,000 addresses have bridged over $871 million to zkSync in the last seven days, with the number of addresses bridging to zkSync surging by 5x in the last week.

Many proponents of zkSync believe that they will be rewarded with an airdrop in the near future, similar to Arbitrum’s recent airdrop. After the Arbitrum airdrop, zkSync and StarkNet are regarded as the upcoming airdrops with the most potential value. On March 17, nearly 5,000 people deposited more than 536 ETH using the zkSync bridge, and almost 3,000 users deposited over 234 ETH using the StarkNet bridge.

Although zkSync is not conducting an airdrop, the enthusiasm around the Arbitrum airdrop has led many proponents to believe that they could be rewarded in the future. However, scammers have attempted to use Arbitrum branding to conduct fake and scam airdrops, which highlights the importance of verifying the authenticity of such promotional tools.

A crypto airdrop is a promotional tool used by crypto projects to generate hype around their projects. The crypto projects behind these airdrops often directly deposit digital tokens into the wallets of active blockchain community members as a gift. The eligibility criteria for these airdrops may include specific requirements, such as spreading awareness around the project, among others.

Not all crypto airdrops are equally valuable due to multiple factors, such as the project’s use cases and the people behind the projects, among others. However, layer-2 solutions like Arbitrum, Optimism, and zkSync have established themselves in the blockchain community and have proven records, which has attracted more traders to the Arbitrum airdrop. As a result, it could prove to be more valuable than the usual crypto airdrops.


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Matter Labs to Reveal its ZkSync Token Specification in November 2022

Steve Newcomb, chief product officer at zkSync’s development company, Matter Labs, has disclosed in a Twitter Spaces discussion that the native token for the Ethereum scaling solution zkSync will be revealed in the first week of November. 


Newcomb made this announcement shortly before zkSync plans to debut its core network which has been in construction back in 2021. 


Furthermore, when questioned about the release date of a prospective zkSync token, Newcomb said. “In the first week of November, and I don’t wanna cause too much of a flurry here, look for us to make a statement that many people are waiting for relating to tokenomics.” 


While Newcomb acknowledged that the token information would soon be available, he described the rumors of an airdrop—a free token distribution to zkSync users as false. 


Matter Labs Raised $50 million in a Series B Funding 


Back in November 2021, Andreessen Horowitz (a16z) headed a $50 million Series B funding round for Matter Labs to finance the creation of zkSync.


zkSync is a ZK rollup-based Ethereum scalability solution that uses zero-knowledge (ZK) proofs to rely on Ethereum for security while concurrently bundling transactions off-chain to deliver swift and less expensive crypto transactions.


The firm is preparing to launch the mainnet, which it claims will completely support Ethereum smart contracts on the ZK-Rollup, in an ecosystem branded “zk-EVM.”


Following zkSync’s mainnet debut, more than 100 projects expressed interest in using it to distribute their apps. Interestingly, Uniswap, the biggest decentralized exchange by value, passed a legislative bill recently to run its version 3 exchange on zkSync after the mainnet launch.

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zkSync Parent Firm Sets to Launch Layer 3 Testnet ‘Pathfinder’ in Q1 2023

Matter Labs has announced its pending testnet launch – a new layer 3 Ethereum scaling prototype called ‘Pathfinder,’ which will be released in the first quarter of 2023 and could turn out to be the first Layer 3 network built on the Ethereum blockchain.


Matter Labs is the Ethereum development firm behind zkSync, a Layer 2 scaling network on Ethereum that is set to launch later this month.

A layer 2 network is built and connected to the base layer (Ethereum). It improves scalability, enabling it to process more transactions at a lower cost.

In Matter Labs’ latest Medium blog post, the firm announced its layer 3 launch, described as the “path towards unlocking unlimited scalability and customization.”

This Layer 3 network will amplify all the benefits of Layer 2 and enable limitless scaling with limitless customization.

“With zkSync’s Layer 3 solution, developers will be able to choose from 3 data availability options all using the same proving infrastructure for their project. Developers can choose their own trade-offs between price, performance, and security,” said Matter Labs in the announcement.

The firm further stated that their Layer 2 solution, zkSync, is there to provide the necessary foundation for the scaling of Ethereum in the ecosystem without devaluing its security or decentralization. But beyond that, it is their vision that unlimited scalability, and as a result, mass adoption comes from Layer 3 and beyond.

Furthermore, Matter Labs explained that the layer 3 solution, Pathfinder, will replace non-native bridges with native bridges (or “HyperBridges”) and enable native bridging between blockchains.

Native bridging is moving tokens from one blockchain to another without locking or giving tokens to an intermediary ‘escrow’ bridging platform.

Once zkSync finally launches its layer 3 network, it could solve one of the industry’s main pain points, as billions of dollars have been stolen through exploits of non-native bridges between Layer 1 and layer 2 blockchains in the past year.

Last week, the crypto industry witnessed another on-chain hack, with roughly $100 million of Binance Coin (BNB) stolen after an exploit occurred on a bridge between blockchains.

According to figures from blockchain analytics firm Chainalysis, a total of $2 billion has been lost to breaches on cross-chain bridges this year.

With this massive amount of money lost to breaches on cross-chain bridges, a Layer 3 network like Pathfinder, which enables the act of native bridging, could be just what the industry needs to avoid these bridge hacks.

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ZK-Rollups and the Path to Scaling Ethereum

Key Takeaways

  • High gas fees on Ethereum have highlighted the urgent need for scaling solutions.
  • While the scaling solutions of today have seen success, they suffer from problems with composability and decentralization.
  • ZK-Rollups improve on existing Layer 2 networks by offering enhanced interoperability and security.

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As the cost of using Ethereum increases, the need to scale the network has become more apparent than ever. Zero-Knowledge Rollup technology promises to lower gas fees without compromising on decentralization and security. 

Ethereum’s Scalability Issues

High gas fees have become a major problem for Ethereum.

As transaction fees are paid in ETH, the cost of using the network rises when the price of the asset does. ETH is up 460% this year, which means the cost of transactions has also increased by 460% in U.S. dollar terms.

Transaction fees also depend on the level of network congestion. As there is huge demand for Ethereum block space today, gas fees are also high.

The high cost of using the network has priced many users out of DeFi, NFTs, and even participating in DAOs. Many crypto enthusiasts have migrated to other Layer 1 blockchains such as Solana and Avalanche because of Ethereum’s expense.

Ethereum: Median Transaction Gas Price (Source: Glassnode)

Over the last few years, several scaling solutions have been developed to help relieve congestion on Ethereum and reduce the cost of transactions. Polygon launched in 2019 and was arguably the first Ethereum scaling solution to gain significant traction. The network uses a scaling solution called Plasma, which offloads transactions from the main Ethereum blockchain into a dedicated sidechain. Many Ethereum-native DeFi applications such as Curve and Aave have launched on Polygon this year. 

While Polygon has successfully attracted users by offering low fees, it is often criticized for not being a true scaling solution. Polygon uses a Proof-of-Stake consensus mechanism governed by its own set of node validators. This means that it doesn’t use Ethereum mainnet to validate transactions so is generally regarded as less secure and decentralized. There are only 100 validators governing Polygon. According to data from Polygonscan, the top validator address accounts for over 27% of the network. 

Top 25 Polygon Validators by Blocks (Source: Polygonscan)

Over the past year, another type of scaling solution called rollups has generated a buzz in the Ethereum community. Currently, every transaction on Ethereum includes all the computational data needed when interacting with a smart contract. As block space is limited, Ethereum can easily become congested, resulting in slow transaction confirmations and high gas fees. 

Rollups offer a way to outsource computational data and send validity proofs back to Ethereum mainnet. This saves block space and allows for transactions to be bundled together, further reducing the amount of data committed to mainnet. When transactions are bundled together, gas fees are split between many users. Rollups offer users near instant transaction speeds and can reduce fees by a factor of 50 to 200 while maintaining the security and decentralization of Ethereum mainnet. 

What Are Zero-Knowledge Rollups? 

Rollups come in two flavors: Optimistic and Zero-Knowledge. Optimistic Rollups assume that transactions sent back to the base chain are legitimate. Transactions only get rejected if someone watching the chain can prove that they are fraudulent by submitting a fraud proof. In other words, Optimistic Rollups take an “innocent until proven guilty” approach to validating transactions. 

Conversely, Zero-Knowledge Rollups, also known as ZK-Rollups, generate cryptographic proofs that demonstrate transactions are legitimate when sent back to mainnet. Transactions are only accepted on Ethereum after the cryptographic proof is validated. Unlike Optimistic Rollups, ZK-Rollups take a “guilty until proven innocent” approach to validation. 

Currently, Optimistic Rollups have seen the most adoption, thanks in part to the ease of developing applications on them. Optimistic Rollups can support full smart contract functionally straight out of the box, and developers can code applications using Solidity, Ethereum’s native programming language. Data from L2beat shows that the biggest Optimistic Rollup today, Arbitrum, has attracted over $2.5 billion of total value locked in DeFi applications. It hosts many of the most popular DeFi applications on Ethereum. 

However, Optimistic Rollups face a few challenges. Because of their approach to validating transactions, funds sent back to Ethereum mainnet are subject to a dispute period of up to a week. This inconveniences users and breaks composability. 

While Optimistic Rollups have improved on Plasma-based solutions like Polygon, they are generally regarded as inferior to ZK-Rollups. Optimistic Rollups have a dispute period and offer scalability improvements up to a factor of 77. ZK-Rollups have no dispute period, and they offer improvements up to a factor of 500.

However, ZK-Rollups have not yet reached the same level of compatibility as their Optimistic counterparts. Because ZK-Rollups have validity proofs accompanying every transaction, their technology is more difficult to construct. ZK-Rollups have been developed to handle simple tasks like direct transfers and trading. While integrating smart contract functionality is possible, it has proven a lot more difficult. 

As recently as this year, Ethereum co-founder Vitalik Buterin predicted that development of fully composable ZK-Rollups would take several years. However, developers are ahead of schedule. Several ZK-Rollups are getting ready to deploy solutions that are mutually composable and interoperable, even across rollups.

The development of ZK-Rollups will allow for a shared communication framework between Ethereum mainnet and multiple Layer 2 networks, where networks can share liquidity and overcome the biggest adoption challenges Layer 1 blockchains face. ZK-Rollup-based networks will not need to compete for liquidity in order to deliver efficient trading through decentralized exchanges, and will instead be able to work cooperatively to scale Ethereum. 

ZK-Rollups also have another unique feature. Transactions become cheaper as more people use them due to the way fees are calculated for each batch of transactions. The cost to send batch isn’t subject to much variance, so gas costs can be split among more users as more transactions are bundled in a batch. ZK-Rollups can bundle an almost infinite amount of transactions, so gas fees for transactions could be reduced to fractions of pennies with enough users. This feature is called validity proof amortization.

While Ethereum is still facing scalability issues, several developers are already in the process of deploying Layer 2 ZK-Rollup networks, promising full composability and compatibility between smart contracts, other Layer 2 solutions, and the Ethereum Virtual Machine. 

Types of ZK-Rollup

There are currently two different types of ZK-Rollup being utilized in Ethereum scaling solutions. 

The first and most widely used type of ZK-Rollup uses ZK-SNARKs—succinct non-interactive arguments of knowledge. SNARKs were the first type of zero-knowledge proof discovered; the early blockchain project Zcash used them as early as 2016. SNARKs form the majority of ZK-Rollup developer libraries and published code and are regarded as a strong option for Ethereum scaling projects. 

One big drawback of SNARKs is that they require an initial creation event of the keys that are used to create the proofs required for transactions. If the keys in the trusted setup event are not destroyed, they could be used to create new tokens out of thin air or falsify transactions.

The most prominent SNARK-based scaling solution today is the Matter Labs’ zkSync project. Launched in June 2020, zkSync is promising 2,000 transactions per second in its current iteration, with hopes of achieving higher throughput in the future. In May, the platform started working toward smart contract deployment in an EVM-compatible environment with the launch of its zkEVM testnet. 

The main focus of zkSync has been making the transition from Ethereum mainnet as easy as possible. Those wanting to develop on zkEVM can write smart contracts using Solidity, Ethereum’s programming language. Matter Labs recently raised $50 million to aid development of zkSync in its Series B funding round led by Andreessen Horowitz. Additionally, the company has partnered with several Ethereum DeFi blue chips such as Curve Finance, Aave, and 1inch. 

The other type of ZK-Rollup uses STARKs—scalable transparent arguments of knowledge. STARKs offer an advantage over SNARKs as they rely completely on hash functions and do not require a trusted setup. This means that STARKs are theoretically more secure than SNARKs, which has made them a favorite of the Ethereum Foundation. 

StarkWare is the first company to use STARKs to scale Ethereum and is currently the main driving force behind the development of STARK-based technology. StarkWare has created a Turing-complete programming language for STARK-based ZK-Rollups called Cairo. It used Cairo to create its first product, the StarkEx protocol. 

StarkEx is an application-specific scaling solution that is currently being used by several Ethereum projects, including dYdX, Immutable X, Sorare, and DeversiFi. StarkWare is about to release StarkNet, a permissionless ZK-Rollup network that lets developers build and launch applications directly on Layer 2. StarkNet is aiming to become a true, decentralized, multi-app scaling solution. 

StarkEx is planets, StarkNet will be constellations (Source: StarkWare)

ZK-Rollups are about to change the way the crypto community uses Ethereum. As high-speed, low-cost networks like zkSync and StarkNet materialize, transactions on Ethereum mainnet will increasingly be outsourced to Layer 2. This should allow Ethereum to move closer to its vision of becoming a scalable, secure, and decentralized blockchain network. 

Disclosure: At the time of writing this feature, the author owned ETH and several other cryptocurrencies. 

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Matter Labs raises $50M to build EVM-compatible zk-rollups

Matter Labs has announced a major new funding round to further develop the second version of its Ethereum-based rollups, zkSync.

On Nov. 9, Matter Labs announced it had secured $50 million in a Series B round led by Andreessen Horowitz and included participation from existing investors Placeholder and Dragonfly Capital. The new round follows Matter Labs’ $6 million Series A in February, and saw participation from many new investors including, ConsenSys, and OKEx.

The new cash injection will be channeled into further developing zkSync v2, the firm’s second-layer rollups solution for Ethereum that is currently focussed on facilitating low-cost payments.

Rollups are a second-layer scaling solution that “rolls up” transactions data in batches for more efficient processing on Ethereum’s layer-one. Matter’s zkSync solution uses zero-knowledge proofs to minimize the data held in these bundled transactions and thus reduce the computing and storage resources required to validate blocks

zkSync v2 will build on the current iteration by supporting Ethereum Virtual Machine (EVM) composable smart contracts. Dan Boneh, Professor of Computer Science at Stanford, explained:

“zkSync will enable Ethereum transactions at a much higher rate and lower gas fees than mainnet. The math used by Matter Labs is really quite beautiful, and it is remarkable to see this coming to fruition at a massive scale so soon.”

The first version of zkSync v2 is currently live on testnet with a port of Uniswap v2 dubbed “UniSync” that users can experiment with. The platform has processed more than 2 million transactions since launching in June.

Related: Ethereum layer-twos reportedly processing more transactions than Bitcoin

Matter Labs was an early proponent of rollups, having launched the first-ever public zk-rollup prototype in early 2019.

Ethereum co-founder, Vitalik Buterin, is confident that layer two solutions such as zkSync will solve the network’s scaling issues until sharding is rolled out sometime in late 2022.

In a blog post in January, Buterin predicted that zk-rollups will emerge as Ethereum’s dominant scaling solution over “the medium to long term in all use cases.”