What Is Layer 2 (L2)?

Layer 2 refers to any off-chain network, system, or technology built on top of a blockchain (commonly known as a layer-1 network) that enhances the capabilities of the underlying base layer network. Layer 2 networks offer improvements such as higher transaction throughput. A core requirement for a network, system, or technology to be considered Layer 2 is that it inherits the security of the blockchain it is built upon. Transaction data must be verified and confirmed by the underlying blockchain network, not a separate set of nodes. For example, sidechains are often not considered Layer 2 because they typically deploy their own consensus mechanisms and validators, resulting in different security guarantees than the base layer chain.

For blockchains that prioritize decentralization and security over scalability, Layer 2 solutions provide greater transaction throughput, which can lead to lower fees. Layer 2 is seen as a solution to scalability challenges, enabling fast and scalable transactions without compromising decentralization or security.

Top Layer 2 (L2) Coins by Market Cap

Below is a list of the top Layer 2 coins ranked by market capitalization, along with brief details about each project:

1. Mantle (MNT) Mantle is a Layer 2 solution designed to scale Ethereum. It offers fast and low-cost transactions, providing developers with a high-performance platform. Its modular architecture stands out.
2. Arbitrum (ARB) Arbitrum is an Ethereum-based Layer 2 solution that utilizes optimistic rollup technology. It is popular for decentralized applications due to its low transaction fees and high throughput.
3. POL (ex-MATIC) POL (formerly MATIC) is the native token of the Polygon network, designed to enhance Ethereum’s scalability. It supports a broad ecosystem with fast transactions and low costs.
4. Optimism (OP) Optimism is another optimistic rollup solution that boosts Ethereum’s scalability. It provides developers and users with an efficient experience through low-cost transactions.
5. Stacks (STX) Stacks is a Layer 2 solution that adds smart contract and decentralized application support to the Bitcoin blockchain. It leverages Bitcoin’s security to develop innovative applications.
6. Immutable (IMX) Immutable X is an Ethereum-based Layer 2 solution focused on NFTs and gaming. It offers fast and secure transactions with zero gas fees.
7. Starknet (STRK) Starknet is a Layer 2 network that scales Ethereum using zero-knowledge (ZK) rollup technology. It provides high security and low transaction costs.
8. ZKsync (ZK) ZKsync enhances Ethereum’s scalability with zero-knowledge technology. It offers fast, secure, and low-cost transactions on a user-friendly platform.
9. Wrapped Ether (Mantle Bridge) (WETH) Wrapped Ether (WETH) is a tokenized version of Ethereum used within the Mantle network. It facilitates liquidity and seamless transactions in Mantle’s Layer 2 ecosystem.
10. Movement (MOVE) Movement is an Ethereum-based Layer 2 solution that delivers high-performance data transfer and transaction speed. It stands out with its innovative technologies.

Layer 2 solutions address blockchain scalability issues, offering faster, more cost-effective, and secure transactions. Ranked by market cap, these projects enhance the potential of leading networks like Ethereum and Bitcoin, shaping the future of the decentralized ecosystem. These coins continue to provide innovative opportunities for both developers and users.

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In its report for Q4 2024, Grayscale highlighted 20 altcoins with growth potential, taking into account market trends and key factors specific to each token. The list now includes 6 new altcoins: SUI, TAO, OP, HNT, CELO, and UMA. However, RENDER, MNT, RUNE, PENDLE, ILV, and RAY have been removed from the previous list.

According to Grayscale, the altcoins with high potential for the fourth quarter are as follows:

• Bitcoin (BTC)
• Ethereum (ETH)
• Solana (SOL)
• Toncoin (TON)
• Chainlink (LINK)
• Near (NEAR)
• Uniswap (UNI)
• Sui (SUI)
• Bittensor (TAO)
• Stacks (STX)
• Aave (AAVE)
• Optimism (OP)
• Arweave (AR)
• Maker (SKY)
• Helium (HNT)
• Lido DAO (LDO)
• Akash Network (AKT)
• Aerodrome (AERO)
• Celo (CELO)
• UMA Protocol (UMA)

Additionally, it was stated, “This quarter, we have removed the following projects from the Top 20: Celo. Grayscale Research continues to value each of these projects, and they remain important elements of the crypto ecosystem. However, we believe the revised Top 20 list may offer more attractive risk-adjusted returns for the upcoming quarter.

Investing in the crypto asset class involves risks, including some unique to the crypto space, such as smart contract vulnerabilities and regulatory uncertainty. Furthermore, all assets in the Top 20 have high volatility and carry high risks, making them unsuitable for all investors. In light of the risks associated with the asset class, any investment in digital assets should be considered within the context of a portfolio and with the investor’s financial goals in mind.”

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Currently, we observe a re-test movement toward the broken trend on the STX side. The 2.19 level stands out as a significant support zone for STX. If this zone is lost, there is a possibility that STX may experience a decline toward the 1.83 level. However, the likelihood of a rebound from this level appears higher. In such a case, STX is expected to show an upward move toward the 2.65 price level.

Moreover, the FVG gap in this region and the substantial liquidity in the upper price range provide favorable market conditions for this scenario to unfold.

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Bitcoin (BTC)

• BTC soared above the green Supertrend line on the 2-hour charts, signaling a bullish breakout.
• “Buy” signals flashed, supported by quick reversal of “Sell” signals, indicating strong buying pressure.
• The Price Percentage Oscillator (PPO) stayed positive, confirming the bullish momentum.
• BTC price jumped 3.8% to $51.8k in the last 24 hours, with trading volume rising 21% to $44 billion.

Ethereum (ETH)

• ETH climbed above both the 20-period Simple Moving Average (SMA) and the Bollinger Bands middle line, showcasing an uptrend.
• Expanding Bollinger Bands hinted at possible increased volatility and continued trend.
• The Average Directional Index (ADX) above 50 reaffirmed the strong trend.
• ETH price surged 4.5% to $2,783 in the last 24 hours, with trading volume skyrocketing 50% to $24.6 billion.

Stacks (STX)

• STX exhibited a solid uptrend on the 2-hour charts, staying above all three Alligator indicator lines, a bullish sign.
• The Klinger Oscillator’s positive divergence further strengthened the bullish outlook.
• This chart indicated a well-established uptrend.
• STX price rallied 23.9% to $2.64 in the last 24 hours, with trading volume doubling to $795 million.

Sei Network (SEI)

• SEI displayed bullish action with recent “green” candles representing buying momentum.
• The Money Flow Index (MFI) was high, exceeding 80, pointing to both potential overbought conditions and strong buying interest.
• However, the negative Volume Oscillator indicated a divergence between rising price and lower volume, suggesting caution.
• SEI price climbed 12.3% to $0.888 in the last 24 hours, with trading volume doubling to $869 million.

The Takeaway

Despite the overall positive market sentiment, SEI’s volume divergence warrants some caution. Overall, the crypto market appears to be experiencing a bullish resurgence, with strong price movements across major coins and tokens.

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