The onset of Ethereum has been nothing short of revolutionary for the world of DeFi. Ethereum is the world’s first Turing-complete trustless blockchain of its kind . It has changed the way people think about digital money, global payments, and applications. However, the rapid growth of the Ethereum ecosystem, which propelled Ethereum’s price to all-time highs, has also revealed underlying constraints with regards to scalability. The high gas costs associated with the Ethereum network have made it prohibitively expensive to use for all but a small group of market participants.
To overcome the constraints affecting the Ethereum ecosystem, and by extension, the DeFi sector as a whole, the market quickly adopted various scaling solutions. These solutions can be broadly classified into two classes - layer 1 blockchains and layer 2 protocols.
Figure 1: L1 and L2 Scaling Technologies