Investing

11 Best Layer 2 Crypto Projects To Check Out Post-Merge (2023)

Intermediate
Investing
Altcoins
Blockchain
Feb 13, 2023

On Sep 15, 2022, the Ethereum mainnet completed its transition from the proof of work (PoW) consensus mechanism to proof of stake (PoS). Dubbed "The Merge," the transformation of Ethereum from the PoW to PoS consensus layer was a highly anticipated event. The transformation has positively affected the price of various Ethereum-based Layer 2 projects. The price of Polygon, one of the most popular Ethereum Layer 2 solutions, rose by 36%. Meanwhile, Optimism registered an increase by over 60%. Investors are also awaiting subsequent developments such as the Ethereum Shanghai upgrade, which would likely push the price of Layer 2 projects further.

So, what are some of the top Ethereum Layer 2 solutions you should consider investing in post-merge? Let's find out.

What are Ethereum Layer 2 Protocols?

Ethereum Layer 2 protocols are solutions designed to solve the scalability issues related to the main Ethereum base blockchain. Layer 2 is attached to the Ethereum Layer 1 blockchain, which enables it to perform blockchain operations and report them to the main chain.

You can think of these Ethereum Layer 2 solutions as roads leading to the main Ethereum highway. When the Ethereum network gets congested due to high traffic, Layer 2 helps by offloading the traffic to the roads. Ultimately, the congestion is reduced. 

Since Ethereum has reached its capacity of one million transactions per day, the various Layer 2 protocols help Ethereum increase transaction speed without sacrificing decentralization or security. Among other benefits, they also contribute to lowering gas fees and letting developers create new applications with improved user experience. 

Types of Layer 2 Protocols

In the last two to three years, various Ethereum Layer 2 solutions have emerged. State channels, plasma and rollups are some of the well-known techniques. Each of these has its advantages and limitations. Following is a brief overview:

State Channels

State channels allow users to transact with one another outside of the blockchain, enabling instant peer-to-peer Ethereum transactions. While state channels offer high transaction throughput, instant withdrawal and low fees, they suffer from cross-chain interoperability. However, the advent of cross-chain state channels may provide added flexibility. 

Plasma

Plasma is another popular Layer 2 solution that uses smart contracts and Merkle trees to create almost unlimited sidechains. Since the transaction and the computation takes place inside sidechains, it helps Ethereum handle much larger data sets. Unfortunately, the withdrawal time can range between 7 and 14 days.

Rollups

Blockchain rollups are somewhat similar to plasma; however, rollups keep some of the data on Ethereum. The unique mechanism helps elevate security and reduce centralization. You can even run an Ethereum Virtual Machine (EVM) inside a rollup. There are two kinds of rollups: optimistic rollups and zero-knowledge (ZK) rollups. In the long run, ZK rollups may prove more practical due to their shorter withdrawal time.

Top 11 Ethereum Layer 2 Projects

Investing in Ethereum Layer 2 projects makes sense because Ethereum is the most highly anticipated cryptocurrency that may potentially cause the Flippening and overtake Bitcoin as the king of crypto. Ethereum Layer 2 blockchains help to quickly solve scalability issues related to Ethereum which may hasten the Flippening process. The recent hike post-Ethereum Merge in the price of native tokens associated with some of the Ethereum Layer 2 projects is a testament to this theory. 

If you're looking for opportunities, consider these 11 well-established and upcoming Layer 2 projects:

*NOTE: All Market Cap and Total Value Locked values are as accurate as of date of publishing (Feb 13, 2023).

1. Polygon 

Native Token: MATIC

Market Cap: $10.98 billion

TVL Value: $8.66 billion

One of the largest Ethereum Layer 2 scaling solutions in the cryptosphere, Polygon is a sidechain running in parallel to the Ethereum blockchain. Among its main functions are faster transactions and lower transaction costs. You can "bridge" some of your cryptos to Polygon, enabling you to interact with a wide range of decentralized apps (DApps) that are exclusive to the Ethereum network.

Polygon's main chain is a PoS sidechain, which is used to validate transactions and vote on network upgrades. Developers can easily build additional sidechains using the Polygon software development kit (SDK). At this time, Polygon supports the development of sidechains using plasma, optimistic rollup, and ZK-rollup construction scalability methods.

Ways to invest in Polygon on Bybit:

2. Mantle 

Utility Token: BIT

BitDAO Market Cap: $672.14 million

BitDAO TVL Value: $3.13 billion

Mantle is the first modular Layer 2 protocol built on Ethereum that is initiated by a decentralized autonomous organization (DAO). Incubated by BitDAO, Mantle expands the utility of BitDAO's governance token, BIT. 

Mantle's modular structure processes different transactions and actions in separate layers operated by network participants at different levels via Ethereum rollups and a decentralized data availability layer. This enables high throughput on lower gas fees with Ethereum-grade security, derived as a result of a restaking mechanism, for any application built on Mantle.

Mantle also aims to decentralize the sequencer, thereby allowing for multiple Sequencer nodes to operate and receive BIT rewards. This reduces the security and operational risks typically faced in existing rollup models.

Ways to trade BIT on Bybit:

3. Arbitrum

Native Token: NIL

TVL Value: $1.46 billion

Arbitrum seeks to resolve congestion on Ethereum through its high transaction speed of 40,000 transactions per second (TPS) costing about two cents or less in fees. 

The smart contracts on Arbitrum are validated using optimistic rollups. However, Arbitrum stands out for EVM compatibility. It means that DApp developers can build their apps within the Arbitrum mainnet without learning a new coding language. For instance, if you already know the coding language used for developing smart contracts on Ethereum, you don't require additional skills.

Arbitrum doesn't have a native token. Until a native token is introduced, the most direct way to invest in Layer 2 is by investing in projects that are native to the rollup. 

As the largest DeFi project on Arbitrum, GMX is a viable candidate worth investing in. 

GMX is the utility and governance token of the decentralized GMX exchange. Deployed on Arbitrum, the exchange is a spot and perpetual contract decentralized exchange (DEX) with outstandingly low fees and zero slippage. 

GMX Market Cap: $563.76 million

GMX TVL Value: $538.17 million

GMX can be bought as a Spot pair (GMX/USDT) or traded as a USDT Perpetual Contract (GMXUSDT) on Bybit.

4. Optimism 

Native Token: OP

Market Cap: $489.13 million

TVL Value: $784 million

Optimism is a major competitor of Arbitrum. While it's somewhat similar to Arbitrum, Optimism uses the optimistic rollups introduced by the Optimism Foundation. These optimistic rollups assume that every transaction is valid. Any fraudulent transaction is rolled back after participants submit fraud proofs.

Both Optimism and Arbitrum are similar because they only deploy when faulty blocks are identified. Accordingly, tokens on these networks can flow between Layer 1 and Layer 2. The mechanism to confirm a block is also identical. 

Besides enhancing the scalability of the Ethereum ecosystem, Optimism helps maintain the security of transactions. Individual nodes on the network put a stake to suggest a new block, and each note has the power to challenge the validity of the transaction.

Optimism is a good alternative to invest in since Arbitrum has no native token. 

Ways to trade OP on Bybit:

5. Immutable X 

Native Token: IMX

Market Cap: $802.51 million

Immutable X is a scaling solution used for non-fungible tokens (NFTs) on the Ethereum blockchain. This Layer 2 offers web3 gaming developers a way to launch NFT projects quickly with near-zero gas fees and scalable features. 

The technology uses ZK-rollup. Instead of dumping all the transaction data on the blockchain, the system batches together hundreds of separate transactions into a single zero-knowledge proof known as ZK-STARK and processes the transactions off-chain.

Immutable X is also the first ZK-rollup technology that solely focuses on NFT projects. The unique mechanism requires less storage and computing resources to validate an entire block of transactions. NFT projects benefit from the speed because the network can accommodate over 9,000 NFT trades each second. The zero gas fees for minting or launching a play-to-earn ecosystem is an added incentive for developers. 

IMX can be traded as a USDT Perpetual (IMXUSDT) or a Spot pair (IMX/USDT) on Bybit.

6. Shibarium

Native Token: SHIB

SHIB Market Cap: $7.53 billion

Utility Token: BONE

BONE Market Cap: $342.8 million

Shibarium is an upcoming Ethereum-based Layer 2 blockchain that will boost the utility of the famed Shiba Inu ecosystem. 

Over the years, Shiba Inu, the meme coin, has gained enormous success mainly due to the hype created around the concept. Despite the growth, the community always wanted an ecosystem that could sustain its growth in the long term. The debut of the Shibarium L2 layer is the answer to such concerns. 

The sidechain will take over a large portion of the SHIB transactions, so SHIB doesn't have to rely on the Ethereum network. As a result, users will likely experience massive improvements in transaction speeds along with gas fee reductions.

The prices of SHIB and related Shiba Inu tokens are already increasing in anticipation of the launch. If you're a fan of Shiba Inu, it should be a no-brainer to consider SHIB and other tokens in the SHIBA ecosystem. BONE, the governance token of ShibaSwap, Shiba Inu's DEX, is another logical choice to invest in as it is slated to become Shibarium's utility token.

Ways to invest in SHIB on Bybit: 

7. Loopring (LRC)

Native Token: LRC

Market Cap: $506.68 million

TVL Value: $121.38 million

Loopring is a Layer 2 scaling protocol that facilitates noncustodial order book-based DEXs and payment protocols. Deployed in December 2019 on the Ethereum mainnet, it is reputed to perform more than 2,000 TPS while maintaining the same level of security as Ethereum. It uses ZK-rollups for the payment system that lets users exchange digital assets such as cryptocurrencies. 

Loopring has tremendous potential to grow further as DEXs and liquid staking protocols are predicted to flourish in 2023. You can trade LRC as a Spot pair (LRC/USDT) or a USDT Perpetual (LRCUSDT) on Bybit.

8. Gnosis (GNO)

Native Token: GNO

Market Cap: $279.27 million

TVL Value: $63.83 million

Gnosis Chain is the execution-layer EVM Layer 2 sidechain to facilitate the development of DApps and NFTs. It uses the xDai stablecoin to facilitate transactions and pay for smart contracts and gas fees. The native token of the Gnosis ecosystem, GNO, is used for staking on the Gnosis Beacon Chain and for governance in the GnosisDAO. Gnosis Chain is a part of the Gnosis Beacon Chain.

Gnosis Chain was the first Ethereum sidechain solution that had a U.S. dollar-pegged stablecoin as a transactional token. The main goal of the Gnosis Chain is to provide stable, low-cost and optimized transactions for Ethereum-based projects. By focusing on specific goals, the chain can offer developers 100% uptime, $0.0001 per 100K gas, and 5 seconds of block time. 

According to the official website, the Layer 2 blockchain is secured by over 100K validators delivering a yield of almost 16% on staked assets. It takes only $117 to validate with Gnosis Chain. Its advanced technology, simple concept and strong governance make GNO a viable candidate for future growth. 

9. SKALE (SKL)

Native Token: SKL

Market Cap: $226.7 million

SKALE is a Layer 2 web3 network that is highly interoperable, allowing developers to create a variety of DApps on the SKALE elastic sidechains instead of the Ethereum mainnet. It is a highly scalable infrastructure that creates an environment suitable for implementing multiple protocols, virtual machines and enhanced security measures.

It is perhaps the largest Layer 2 blockchain network, which is capable of running an unlimited number of fast, on-demand, pooled-security blockchains with zero gas fees. At the time of writing (Feb 8, 2023), the market cap of SKALE is $177.6 million. 

SKALE operates in an integrated manner with Ethereum while running its own consensus mechanism. Accordingly, developers can create an unlimited number of configurable SKALE chains that are independent of each other. All of these independent chains are interoperable and EVM-compatible, which means that anyone can easily deploy existing Ethereum-based smart contracts directly on SKALE chains. 

According to its founders, SKALE can process 120,000 TPS using SKALE’s modular architecture comprising 1,000 chains. Without a doubt, the unique architecture holds a lot of promise that can make SKALE flourish. 

You can easily trade SKL at high leverage on the Bybit exchange as a USDT Perpetual (SKLUSDT).

10. Starknet (STARK)

Native Token: STRK

StarkNet is a decentralized ZK-rollup that operates on a Layer 2 network over Ethereum. StarkNet uses Validity Proofs called STARK-Proofs that are produced off-chain and validated on Ethereum. Validity Proof is a form of ZK-Proof that lets a party prove that a computation is executed correctly, thereby maximizing privacy and security for the transaction data.

While its native token STRK is not yet available for sale, you can still benefit from StarkNet's growth by investing in the projects built on it. Immutable X as mentioned above is one such project. Another logical investment choice is ApeX Pro, an order book model DEX built in early 2022. 

ApeX Pro Governance Token: APEX

Market Cap: $13.4 million

You can purchase APEX as a USDT (APEX/USDT) or USDC Spot pair (APEX/USDC) on Bybit.

11. Cartesi 

Native Token: CTSI

Market Cap: $101.5 million

Cartesi is the first blockchain operating system. Built as a Layer 2 scaling solution, it lets developers create DApps using popular programming languages such as Linux. 

To develop DApps on Ethereum and its sidechains, developers needed to understand Solidity — Ethereum's coding language. Cartesi has transformed the landscape by letting developers code DApp in any one of their favorite computer coding languages. Now, anyone can easily create smart contracts with rich software tools, libraries, and services.

Cartesi has its version of optimistic rollups known as Cartesi Rollups. With Cartesi Rollups, the transaction throughput is up to 40 times that of Layer 1 without sacrificing the security associated with Ethereum.

CSTI can be traded in Bybit as a USDT Perpetual (CTSIUSDT).

What Happens to Layer 2 Solutions After Ethereum Merge?

Since its inception, Ethereum has suffered from slow transaction speeds and high transaction fees. Layer 2 solutions built on top of the Ethereum blockchain were designed to solve the problem. 

All of the solutions described above help Ethereum scale. Now that Ethereum shifted to Ethereum 2.0 with the Merge which enables it to scale, everyone is asking questions regarding the viability of so many Layer 2 solutions. Will they go obsolete?

While it's true that Ethereum 2.0 will help improve the speed of the network and ease congestion, experts agree that the ecosystem of Ethereum is so large that it will still need help from Layer 2 projects. Therefore, most Ethereum Layer 2 solutions will continue to play an important role in the future.

Besides, it's too early to predict the efficiency of the Ethereum Merge upgrades. This means that it's a waiting game before anyone can comprehensively analyze the performance of the Ethereum 2.0 post-Merge.

Even if the transition performs as predicted, all the Layer 2 solutions on Ethereum can also adapt and scale in tandem, especially those widely popular Layer 2 chains. 

Final Thoughts

Most industry insiders think that Ethereum Layer 2 blockchains will continue to thrive and gain traction in the long run. In fact, the competition will likely introduce new technologies and innovations to these blockchain networks. Without a doubt, it's a win-win situation for investors. Amid the hype and anticipation, this is the best time to invest in Layer 2 solutions.

*This content should not be seen as investment advice; it is merely an opinion. Investing is done at your own risk.