Quick Definition
A Layer 2 (L2) is a secondary blockchain that derives its security from a Layer 1 (L1) like Ethereum or Bitcoin while processing most transactions independently. Periodically, the L2 commits a compressed proof or state root back to the L1, anchoring its state to the L1's security. The result: 10-100x cheaper fees and 10-1000x more throughput than the underlying L1, while inheriting most of the L1's security guarantees.
How it works
Two main families dominate. Rollups (the most common) bundle thousands of L2 transactions into one L1 transaction containing either fraud proofs (optimistic rollups) or validity proofs (ZK rollups). State channels (Lightning Network on Bitcoin) and sidechains are alternative L2 designs with different security models.
For users, an L2 looks like a separate network with its own RPC endpoint, gas token (often the native L1 token), and explorer. Bridging assets between L1 and L2 takes minutes (deposits) to days (optimistic withdrawals) depending on the design.
Why it matters
Ethereum L1 alone cannot host the world's transactions; gas fees would price out everything except institutional flows. L2s are how Ethereum scales without sacrificing decentralization. Major L2s in 2026: Arbitrum, Optimism, Base, zkSync, Starknet, Linea.
Where you'll see this on TerminalFeed
The DeFi TVL panel on the dashboard ranks the largest DeFi protocols by value locked and lists the chains each one runs on, L2s included. The MEV Builders panel follows the Ethereum block building that L2 batches ultimately settle into.