What is Leading the Layer-2 Scaling Solutions’ Extraordinary Performance

2021/09/08 10:35:02

The crypto market is in a massive run to the north as the long-term bulls are back in the game. Post the crash in mid-May, the entire market went into consolidation. The price action of the cryptos began to correlate within sectors. For instance, the decentralized exchange tokens such as Uniswap, PancakeSwap, SushiSwap, etc., all moved together in a similar direction throughout the consolidation. Likewise, cryptos of other domains such as DeFi, Interoperability, Oracles, Ethereum layer-2 scaling solutions, and many more followed a similar trajectory in price.

Though most markets are blasting to the upside, not all are having an impressive push. Few cryptos have made their all-time highs, some are moving closer in correlation with BTC and ETH, while the rest are still preparing to propel.

With several different sectors in the altcoin market, the Ethereum market and its layer-2 scaling protocols have been clearly outperforming in the current bull run. Interestingly, within this domain, the layer-2 solution projects have outshone better results than Ethereum itself. For instance, the Solana project was the first crypto in this category to make its previous ATH and even go much above it.

Ethereum Scaling Solutions: Why Do We Need Them?

When Ethereum came into existence after Bitcoin, people believed it to disrupt the initial blockchain technology. The Ethereum blockchain, of course, gave new light and several use cases of the evolving blockchain technology, but it did come with few pitfalls. One of the major issues being the problem of scalability. For the Ethereum technology to continue to thrive as it did in the beginning, it was crucial to have solutions to the issues with the current Ethereum network. And to address these issues, the Ethereum layer-2 scaling solutions came into existence that kept the Ethereum market up and running.

With the cutting-edge solutions offered by scaling solutions, the projects related to it became an area of interest. Developers who initially worked with Ethereum to build applications shifted to layer-2 projects the unique benefits it offers. As a result, the tokens that power the scaling projects became popular and a domain of high demand.

DeFi Helps Propel Ethereum Layer-2 Projects

The rate of technological advancement and innovation in the crypto sector has always been amazing, but DeFi takes it in a whole greater direction. In 2019, many people who had heard of Bitcoin and Ethereum had not heard of DeFi. But it became extremely popular by the summer of 2020. DeFi was nearly entirely confined to Ethereum at the time, with a few tiny apps operating on other platforms. Uniswap, Aave, and Compound were among the DeFi major applications that made the biggest news as the total value locked grew to approximately $20 billion by the end of 2020.

As the DeFi domain on Ethereum has grown in popularity, transaction costs have risen due to the platform's outdated infrastructure and traditional Proof-of-Work algorithm. The average cost went over $65 at one time in May. Furthermore, if the transaction value is large, the gas fees increased proportionally, which was indeed significant to bear.

However, the layer 2 platforms are now the most important development sector in DeFi, if not the whole blockchain ecosystem. To execute transactions outside the Ethereum main chain, Layer 2 platforms employ technologies like Plasma and rollups. They handle considerably more throughput than Ethereum and update the smart contracts on the Ethereum blockchain and accounts on a regular basis. Layer 2 platforms, hence, reduce traffic on the Ethereum network while also lowering costs considerably.

Thus, with the DeFi space growing exponentially, the layer-2 protocols are also being affected positively, driving their native tokens to greater heights.

Polygon – The Top Ethereum Scaling Protocol

As of date, Polygon token is running a monopoly in the Ethereum scaling department. Post its mainnet that went live in 2020, the network gained massive traction among individual developers and established projects. For instance, the DeFi king Aave brought its Polygon iteration in April, which had almost $8 billion locked by the end of June.

On the price front, Polygon’s MATIC token is performing exceptionally well since its inception. Beginning its bull run in February 2022 at $0.04, went on to set a high all the way up to $2.7 in a quarter of a year. Despite the crash that brought the price back to a dollar, the Support, as shown, remained intact. The market firmly reacting off the demand zones clearly indicates the presence of buyers in the market.

Finally, in August, with the strong fundamental updates and price action in favor of the bulls, the MATIC market headed north from $1 to $1.7 within a couple of weeks.

Polygon price-chart on the daily timeframe | Source: MATIC/USDT

Conclusion

There are market leaders in all markets, including the crypto market. Based on the price action of cryptos in the recent bull run, it is evident that the layer-2 scaling protocols have been the fastest runners, with a few of them even making new all-time highs. Hence, with the institutional players showing interest in this sector, it clearly proves that this domain is being looked upon as a major one.

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