What Is the Impact of Layer-2 Scaling Solutions on the Layer-1 Transaction Fee Market?

Layer-2 (L2) scaling solutions, such as the Lightning Network or rollups, aim to reduce congestion on the Layer-1 (L1) blockchain. By bundling many off-chain transactions into a single L1 transaction, L2 solutions effectively increase the throughput of the L1 chain.

The impact is a reduction in the demand for L1 block space, which can lead to lower L1 transaction fees during periods of moderate demand. However, L2 solutions still rely on L1 for security and settlement, so high L2 usage can still create demand spikes on L1.