As more people use blockchains for payments, apps, NFTs, and games, the demand on those networks grows. On a base blockchain like Bitcoin, Ethereum, or Cardano, every node checks and stores every transaction, so the network can only process so many at once. When demand outgrows that capacity, transactions wait longer to get into a block, and on chains where fees follow demand, they also cost more. Cardano's fee is set by a formula from protocol parameters, mostly the transaction's size, rather than by bidding, so busy periods mean longer waits rather than higher fees.1
Layer 2 solutions are one way to raise capacity. They are systems that sit on top of the main blockchain (the layer 1) and move much of the work away from it.
What Is a Layer 2?
A layer 2 is a protocol built on top of a base blockchain. It processes transactions away from the main chain, then records the result on the layer 1.2 The main chain only has to record the result, not every step, which frees up space and keeps costs down.
Because the final result lands on the layer 1, a well-designed layer 2 lets users fall back on the main chain if something goes wrong. How much a layer 2 relies on the layer 1 for security depends on its design, covered below.
Common Layer 2 Types
- State channels: A group of participants lock funds on the layer 1, trade with each other off-chain as often as they like, and settle the final balances on-chain.2 Hydra is the main example on Cardano.
- Rollups: Bundle many transactions off-chain and post a compressed record to the layer 1.2 There are two main kinds:
- Optimistic rollups treat transactions as valid unless someone proves fraud within a set challenge period (for example, Midgard).
- Zero-knowledge rollups attach one cryptographic proof that confirms a whole batch of transactions is valid (for example, zkFold Rollup).
Adjacent Scaling Solutions
Some projects add capacity to the Cardano ecosystem without being a layer 2:
- Sidechains and partner chains: Separate blockchains with their own consensus and validators, bridged to Cardano.2 Partner chains are Cardano's version of the idea: independent networks that grew out of sidechain research3 and can recruit Cardano stake pool operators as validators.4 Midnight, a partner chain focused on data protection, is one example. Read more in what are partner chains.
- Layer 1 upgrades: Ouroboros Leios is a change to how Cardano itself produces and validates blocks. Input Output expects it to raise throughput by 10 to 65 times, rolled out in phases.5 Leios is being tested on a public testnet before a planned hard fork.6
- Mithril: Stake pools jointly sign snapshots of the chain's state, so nodes and light wallets can get up to date from a signed snapshot instead of replaying every block.7 It does not process transactions.
Why Layer 2s Matter
Layer 2s let a blockchain serve more people without every node handling every transaction:
- Speed: Inside a Hydra head, transactions settle almost instantly, limited mainly by network delay between the participants.8
- Lower fees: Fewer transactions reach the main chain, and each Hydra head runs with its own protocol parameters, which include its fee settings.9
- Capacity: Hydra heads run independently, so many can operate in parallel.9
- Better experience: Fast, cheap confirmations make blockchain apps feel closer to ordinary apps, which suits games, micropayments, and auctions.8
Layer 2s on Cardano
The Cardano website keeps a layer 2 landscape that lists projects by type and status.2 The main ones:
- Hydra: A state channel protocol from Input Output. Input Output declared it production-ready with version 1.0 in October 202510, and it runs on all Cardano networks, including mainnet.9 Transactions inside a head are ordinary Cardano transactions checked by the same ledger rules, so existing scripts and tools work there.8 Midnight's Glacier Drop token distribution ran on Hydra,8 and Input Output points to DeltaDeFi for high-speed trading and Masumi for micropayments as early uses.11
- Midgard: An optimistic rollup built by Anastasia Labs with Input Output. It keeps Cardano's eUTxO transaction model, so apps can move over without being rewritten. Midgard is in a pre-alpha testnet.12
- zkFold Rollup: A zero-knowledge rollup built by zkFold under a funded project that closed with a wallet SDK and a browser demo for moving funds into the rollup, sending them, and withdrawing back to Cardano.13 The code is public, but zkFold has not announced a network for it.
- Gummiworm: A finance-focused layer 2 from Sundae Labs. Funds stay on Cardano and pay out only when both the app and a separate group of independent signers approve. Sundae Labs reports a first trading app running on a Gummiworm head, with the independent signer group still to come.14
- Hydrozoa: Lightweight state channels for several parties, where new participants can join if everyone agrees. It is at the proof-of-concept stage.2
Are Layer 2s Secure?
Each type of layer 2 is secured differently, so it helps to know which one you're using:
- State channels like Hydra rely on the layer 1 to settle disputes.9 The protocol is designed so that participants can't lose funds they haven't authorized,15 but like any software the node gets security fixes, so which version a head runs matters.16 Heads are less flexible than the main chain: the participants are fixed when a head opens, and a head supports a limited number of them.9,8
- Optimistic rollups rely on watchers who check each batch and can submit a fraud proof. On Midgard, that challenge window lasts 3 to 7 days before a block is as final as Cardano itself.12
- Zero-knowledge rollups rely on a cryptographic proof that the layer 1 checks for every batch.2
- Partner chains run their own consensus, so their security depends on who runs their validators.2 Midnight, for example, is run by a fixed group of named companies (a federated model), with a plan to open it to anyone in later phases.17
Before moving funds into any layer 2, check how it is secured and how you would withdraw back to Cardano.
Learn More
- Cardano Layer 2 Landscape: The Cardano website's list of layer 2 projects, sidechains, and their status
- Hydra Head documentation: How Hydra works, with guides for running a head
- Layer 2 guides: More layer 2 explainers listed on Adastack
- Partner chains: Partner chains and guides listed on Adastack
