Layer 2 (L2)
Quick Answer
Layer 2 is a protocol built on top of Layer 1 to improve scalability and reduce fees. Networks like Polygon, Arbitrum, and Base reduce costs to fractions of a cent.
Full Definition
Layer 2 is a secondary protocol built on top of a Layer 1 blockchain to improve scalability, reduce fees, and increase throughput. L2 solutions process transactions off the main chain and periodically settle batches back to L1. Types include rollups (Optimistic and ZK), state channels, and sidechains. For crypto payments, Layer 2 networks like Polygon, Arbitrum, Optimism, and Base are game-changers — they reduce transaction costs from dollars to fractions of a cent while maintaining L1 security guarantees.
Related Terms
Layer 1 (L1)
Layer 1 is the base blockchain network (Ethereum, Bitcoin, Solana) that processes and finalises transactions independently, providing security guarantees for higher layers.
Liquidity
Liquidity is the ease with which crypto can be traded without affecting its price. Deeper liquidity means better exchange rates and less slippage during payment settlement.
Liquidity Pool
A liquidity pool is a smart contract with paired token reserves enabling decentralised swapping, providing the on-chain liquidity for payment settlement conversions.