Blockchains (L2)

A space to discuss the ‘Blockchains (L2)’ market sector available on Token Terminal.

What are Blockchains (L2)?

Blockchains (L2) are smart contract execution environments that allow for the permissionless creation of businesses and regularly timestamp their transaction activity to another Blockchain (L1) for increased security.

What problems do Blockchains (L2) aim to solve?

There are technical limitations to how much transactional activity one blockchain can handle.

How do Blockchains (L2) solve those problems?

Blockchains (L2) scale this throughput horizontally by moving a set of transactions to a separate blockchain, and batching and settling them back to the underlying Blockchain (L1). This means that 1,000 transactions on the L2 become 1 transaction on the L1, which increases the throughput of the L1.

Why is now the right time to build and invest in Blockchains (L2)?

Ethereum has already showcased that it the transaction fees quite quickly become too high for most use cases. It’s difficult to build consumer applications in an environment where a single transaction costs $100. This is also the reason why we’ve seen many L2s being built and launched recently.

What is the business model of Blockchains (L2)?

The primary business model for Blockchains (L2) is to generate revenue by taking a cut of the transaction fees paid by users. That is, the Blockchain (L2) takes a portion of the L1 miners’ or validators’ revenue.

Where can I view the current and historical (financial) performance of Blockchains (L2)?

Blockchains (L2) dashboard: Blockchains (L2) | Markets | Token Terminal

Methodology for Blockchains (L2)-specific metrics

Total value locked: sum of the assets deposited into applications that run on the Blockchain (L2).
Transaction volume: transfer volume of tokens on the Blockchain (L2).
Fees: total transaction fees paid by users of L2.
Supply-side fees: share of transaction fees that go to the miners or validators on L1.
Revenue: share of trading fees paid to the protocol / L2 sequencer.
Token incentives: value of governance tokens distributed to applications on the L2.
Daily active users: daily distinct sender addresses on the Blockchain (L2).

Example project documentation

Relevant links

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