Summary
TLDR: A paper by Austin Adams from Uniswap Labs shows that swapping and providing liquidity on layer-2 networks is cheaper and more beneficial for retail swappers compared to Ethereum’s mainnet. Layer-2 networks have more liquidity and lower gas costs, resulting in higher returns for liquidity providers. However, concerns about centralized sequencers and lack of decentralized fraud proofs exist. Developers are working on solutions to improve layer-2 networks for decentralized markets.
Key Points
1. Swapping and liquidity provisions on layer-2 networks are significantly cheaper than on Ethereum’s mainnet, according to a recent paper by Austin Adams from Uniswap Labs.
2. Retail swappers with trades under $125,000 are much more likely to benefit from lower gas costs and higher liquidity concentration on layer-2s than on the Ethereum mainnet.
3. Liquidity providers are making 20% more in returns from arbitrage on layer-2s than on the mainnet, due to less successful arbitrage attempts and shorter block times offered by layer-2 networks.