What Is a Layer-2 Scaling Solution and How Does It Affect DEX Transaction Speeds?
A layer-2 scaling solution is a framework or protocol built on top of a main blockchain (Layer 1). Its purpose is to increase transaction throughput and reduce costs without compromising the security of the main chain.
Examples include Rollups and State Channels. By processing transactions off-chain and then bundling them into a single transaction on the main chain, Layer 2s can dramatically increase the speed and lower the cost of using a DEX.
This makes the user experience on non-custodial exchanges much more comparable to that of their custodial counterparts.
Glossar
Transaction Throughput
Meaning ⎊ Transaction throughput quantifies the maximum number of transactions a blockchain network can process and validate within a given unit of time, typically measured in transactions per second (TPS).
Scaling Solution
Architecture ⎊ Scaling solutions, within cryptocurrency and derivatives, fundamentally address limitations in transaction throughput and confirmation times inherent in base-layer blockchains.
Non-Custodial Exchanges
Architecture ⎊ These venues operate without holding client funds, relying instead on on-chain smart contracts or multi-signature schemes for transaction validation and settlement.
Rollups
Scalability ⎊ Rollups represent a Layer 2 scaling solution for blockchains, fundamentally altering transaction throughput and cost structures by executing transactions off-chain while maintaining on-chain data availability.
Layer-2 Scaling Solution
Architecture ⎊ These solutions operate as secondary protocols built atop a base layer blockchain, designed to process transactions off-chain to enhance throughput and reduce per-unit cost.
Optimistic Rollups
Rollup ⎊ Optimistic rollups represent a Layer-2 scaling solution for blockchains, primarily Ethereum, designed to enhance transaction throughput while inheriting the security of the underlying Layer-1.