How Does the Reduction in Transaction Cost Affect the Bid-Ask Spread for On-Chain Options?

Lower transaction costs, enabled by Layer 2, generally lead to a tighter bid-ask spread for on-chain options. Market makers can operate with lower margins because their costs for submitting and updating quotes are reduced.

This increased efficiency encourages more active participation from liquidity providers, resulting in a more competitive market and better pricing for traders. A tighter spread means less slippage and better execution prices.