After the absurd growth of Ethereum and many other Layer 1 projects last year, people coined this year as “Layer 2 2022,” and it would appear that title may indeed be accurate.
Binance, the largest crypto exchange in the world, just rolled out support for withdrawing directly to the Ethereum Layer 2 (L2) protocol Arbitrum One. L2 protocols solve a major problem for Ethereum: high gas fees. Right now, Ethereum gas fees seem like an annoyance, but just a couple of months ago we were looking at costs of $200+ to do any transaction on the blockchain. For Ethereum, the solution is to move your assets onto a Layer 2 protocol which consistently has lower fees and faster transactions.
Here’s the problem: up until now, moving from Ethereum mainnet to an L2 like Arbitrum involved paying the gas fee for an Ethereum transaction. There were no good ways to natively move assets into an L2 protocol. This means people who were new to crypto had a high financial barrier when testing out new projects.
While we are calling it Layer 2 2022, we already saw plenty of growth for Layer 2 protocols in the prior year. Exactly one year ago, the total value locked in L2 protocols was $120M; today that number has gone up to $5.68B. This expansion hasn’t been entirely without growing pains, however, as Arbitrum One recently had a prolonged outage.
So far, the only major exchanges that support direct withdrawals to L2s were crypto.com and KuCoin. Binance’s announcements suggest they had built out the code necessary to support direct withdrawals, but gave no indications of a release date prior to the withdrawal option debuting on the site. Coinbase recently announced they were integrating with Polygon, a competing L2 protocol.