Layer 2 (L2)

A layer 2 (L2) is a separate blockchain that runs on top of a base chain - "layer 1," usually Ethereum - to make transactions faster and far cheaper, while still inheriting the base chain's security. It processes activity off the main chain and periodically posts compressed proofs or data back to layer 1, which remains the final source of truth.

The problem it solves is cost. When Ethereum's base layer is busy, each gas fee can climb to several dollars or more, which is fine for a large trade but painful for a $50 transfer. A layer 2 batches many transactions together and settles them as one, so each user pays a fraction of a cent to a few cents.

Most leading L2s are "rollups." They execute transactions off-chain and roll them up into a single batch on Ethereum. Optimistic rollups (such as Base, Optimism and Arbitrum) assume batches are valid unless challenged; zk-rollups use cryptographic proofs to verify each batch outright. Many share a common toolkit called the OP Stack.

For real-world assets, L2s matter because small-ticket, frequent transfers - buying a fractional share, collecting a distribution - only make economic sense when fees are tiny. Base, Coinbase's Ethereum L2, is a common choice for consumer-facing RWA products for this reason.

The trade-off is added complexity and newer infrastructure. Your assets ultimately rely on the L2's bridge and sequencer behaving correctly, and on it settling back to Ethereum as designed. The security is strong but one step removed from the base chain.

Source: Ethereum docs (ethereum.org), as of 2026.