DeFi Is Becoming More Functional Thanks to Ethereum Layer 2 Solutions

Over the last two years, there has been a dramatic expansion in the decentralized finance (DeFi) industry. The ecosystem’s total value locked (TVL) was over $250 billion by the end of 2021. This was possible through an ever-expanding spectrum of decentralized applications (dApps). Since its inception, Ethereum has been a key player in the market. The motive behind the network is to serve as a foundation for Web3 and the Metaverse. But there’s a catch: Ethereum has a serious scalability problem. There is a hindrance to user experience, and there is a limitation to its widespread adoption by rate limits and the ever-increasing transaction fees. The result of this difficulty of Ethereum to scale is a huge migration to alternative Layer 1 platforms like Binance Smart Chain, Solana, and Polkadot. Despite the popularity of these so-called “eth killers,” Ethereum still controls 54% of the DeFi industry, with $111 billion in TVL. This is mostly owing to the network’s better levels of security and decentralization. Many developers now use “Layer 2″ blockchain technology to help native Ethereum decentralized applications (dApps) scale and serve more users. Layer 2 protocols take several forms. However, they are generally independent blockchains that sit “on top” of Ethereum and offload transaction traffic from the main chain. This significantly boosts capacity, decreases latency, and lowers prices. Hence, there’s a revival of the DeFi i...