Undervalued Layer 2 projects play a significant role in the cryptocurrency ecosystem by offering innovative solutions to scale blockchain networks and improve functionality. These projects address the scalability limitations of Layer 1 blockchains like Ethereum by processing transactions off-chain and settling them on the main blockchain. Despite their potential, many of these projects are undervalued compared to leading blockchain platforms due to limited market awareness, ongoing development, and challenges in gaining traction within the broader crypto community. Undervalued L2 for us are the ones that are listed and under a 1 Billion market cap. Leading L2 such as Arbitrum, Optimism, Mantle, and Immutable still have bright futures ahead and are still relatively “undervalued” if we truly come to a Bull market but it is not a focus in this post. So, here are our picks of the biggest potential Layer2 projects under a 1 Billion market cap. 

1. CoinWeb:
Project Summary:

The Coinweb protocol is a Layer 2 solution. But unlike other layer solutions, the Coinweb protocol is agnostic, it is an entirely new approach to blockchain technology. Rather than building a new blockchain or extending an existing blockchain architecture, Coinweb combines different and incompatible blockchains and allows dApps to be Interoperability across all blockchains, unlocking a range of new applications otherwise impossible to implement.

A dApp built using Coinweb would have access to all the data from many different blockchains, be able to combine the transactional capacity from many chains and run complex smart contracts capable of processing all the valuable data and user transactions driving viral growth. Importantly, to underpin the network effects, the output of the dApp should maintain the security properties of the original L1 data.

The tech behind The Coinweb protocol:

   1. Parallel computation environment

   2. L2 interoperability

   3. Reactive smart contracts

   4. Refereed Delegation of Computation Proof Protocol

   5. Inchain architecture

   6. Blockchain agnostic platform token - CWEB

Benefits of the Coinweb Approach:

1. Cross-Chain Tokenisation

Developers can issue blockchain-agnostic tokens on Coinweb, embeddable and tradable across multiple blockchains. Utilise Coinweb's Reactive Smart Contracts for seamless, automatic token transfers between chains. Upcoming trustless bridges will further enable secure, expansive trading within Coinweb's integrated blockchain network.

2. Cross-Chain Broadcasting

Coinweb's broadcaster enables transactions to be embedded in various blockchains, adapting to the specific needs of each dApp. For dApps, the flexibility to operate across multiple blockchains is a significant advantage. Coinweb facilitates this by broadcasting transactions to a diverse range of blockchains, ensuring dApps remain efficient and adaptable.

3. Blockchain Routing System

Coinweb routing system helps future-proof dApps by monitoring the conditions of the underlying chain. If our Reactive Smart Contracts notices that the KPIs are not met, it switches to another chain, ensuring guaranteed liveness of the application and a friction-free solution for users. Once KPIs on the original anchor chain are met again it can move back to it.

4. Wallet Library w/ Fiat Rails

Coinweb wallet library is based on our non-custodial multi-chain wallet. The functionalities of the Coinweb Wallet are available to use for developers today through our Wallet Lib SDK. The fiat rails are also pluggable for third-party dApps that need fiat on/off ramping in their dApp.

5. Gas Fee Abstraction

Gas Fee Abstraction removes the complexity of paying fees across multiple chains. With Coinweb Gas Fee Abstraction, there is no need for users to hold L1 or L2 native tokens to use a dApp. Users simply need to hold the dApp's native token to operate the dApp. This helps minimise complex UX as well as save on transaction fees.

6. Scaling and Cost-Saving

Batching transactions in our layer 2 helps increase blockchain Max TPS by up to 10x as well as save on gas fees by up to 90%. This scales blockchain operations by reducing the impact of individual transactions processed on the L1. The parallel execution of smart contracts enables computational scaling.

7. Reactive Smart Contracts

Coinweb RSCs have self-paying wallets, which can monitor, move, process, and sync data between blockchains without external payments. These actions can be composed to perform complex actions such as cross-chain payment monitoring, non-custodial staking, blockchain routing, cross-chain profile scoring and more.

8. Token Shields

Coinweb's Token Shield, powered by Reactive Smart Contracts, ensures safe redemption between a blockchain's native and Coinweb-native tokens, protecting all holders. It quickly detects bridge exploits and works with any bridging method, providing robust security in wallets and exchanges.

9. Unified Development

Using WebAssembly, Coinweb allows developers to create apps using familiar languages like JavaScript, Python, Rust and 40 more languages. This makes dApps more compatible with common devices and applications as well as opening the door for more developers to participate, expanding the potential talent pool exponentially.

CWEB’s Tokenomics:

• Market Cap: $56,673,849

• Fully Diluted Valuation: $98,784,906

• Circulating Supply: 4,379,783,637

• Total Supply: 7,634,458,877

• Max Supply: 7,680,000,000

What we like in Coinweb:

• Coinweb uses a different approach to scale Layer 1, which has not been seen in the market yet. DApps and their tokens built on Coinweb are going to be agnostic and can move freely across chains while still being able to perform complex actions and inherit the security of Layer 1. This is going to help DApps scale and unify their liquidity. With the in-built cross-chain wallet, DEX, On-off Ramp, and Gas Fee Abstraction are going to improve the UI/UX for users massively.
• CWEB had its TGE on December 30, 2021, which means that at this moment (January 09, 2024), all of the private coins are fully vested. The only coins that are still vesting are from Company Reserve, Founders, Team + Advisors, Strategic Partners, and Mining Reserve.
• The seed price was 0.005, which is only x2.6 from the current market price; the chart also looks bottom and the market cap is only $55M
• The issue with CWEB is they focus on B2B and development and neglect marketing and also not on mainnet yet. But this could be changed since Coinweb is going to be on the mainnet in Q1, 2024, meaning other developers could start building on Coinweb and showcase Coinweb technology.

Project Links:   Website|Twitter |Discord|Coingecko

2. Metis:

Project Summary:

Metis is an EVM-Equivalent Ethereum Layer-2 focused on bridging the gap between Web2 and Web3.  Metis is building a first-of-its-kind Hybrid Rollup by combining the transcendent scalability of the Optimistic Rollup architecture with the security provided by Zero-Knowledge cryptographic proofs.

Optimistic Rollups are EVM-compatible, extremely cost-efficient, and provide lightning-fast transaction confirmations. The main limitations consist of a lack of transaction finality, given all optimistic rollups need 7 days for transaction finality in case fraud proofs need to be executed. This also limits the ability of users to withdraw from Optimistic Rollups to Ethereum, given it takes 7-days for funds to be bridged.

Zero-knowledge rollups, on the other hand, are extremely secure, censorship-resistant, and provide almost immediate transaction finality. They are currently being labelled as the future of rollups. Nevertheless, they also have their limitations, mainly consisting of slower transaction confirmations, higher complexity for builders, arguable EVM compatibility, and higher transaction costs than Optimistic Rollups.

If each of these has the capabilities that the other architecture is missing, combining them would enable the best of both worlds in a single rollup class, and that’s exactly what Metis is building: Hybrid Rollups.

• EVM Equivalence: By utilizing the Optimistic Rollup architecture, Metis can offer Ethereum developers an easy-to-code-in blockchain.

• Faster transaction finality: By implementing zero-knowledge proofs to our optimistic rollup architecture, transaction finality time will be reduced from 7 days to approximately 4 hours.

• Enhanced Security: Validity proofs ensure the correctness of off-chain transactions and prevent operators from executing invalid state transitions. They rely on trustless cryptographic mechanisms for security.

• Increased Throughput: Zero-knowledge proofs remove the need for extra data, each transaction holds only the minimum required. This greatly increases throughput, consequently helping reduce Ethereum’s congestion.

• Capital Efficiency: Users benefit from greater capital efficiency and can withdraw funds from Layer 2s without delays.

• Decentralization: All transactions are processed in parallel, encouraging verifier decentralization. This model stores data needed to recover the off-chain state on L1, which guarantees security, censorship resistance, and decentralization.

• The Hybrid Rollup is achieved by utilizing zkMIPS. This new rollup architecture will consist of STARK-based provers/verifiers on MIPS, generated by Cannon.

Key Features:

In Q1, 2024, Metis will become the first rollup on Ethereum to decentralize its sequencer, it will enable key features such as seamless and safe sequencer rotation, expulsion of malfunctioning or malicious entities, and enhanced network stability. Additionally, the Proof-of-Stake Sequencer Pool will enable: 

• 24/7 Liveness

• Enhanced Censorship Resistance

• Enhanced Security

• Fee Sharing

• Sequencer Staking

• Liquid Staking

• Staking-as-a-Service

METIS Tokenomics:

• Market Cap: $584,990,349 

• Fully Diluted Valuation: $1,101,015,438

• Circulating Supply: 5,313,189 

• Total Supply: 10,000,000

• Max Supply: 10,000,000

What we like in Metis:

All the vesting are done in July 2023. The remaining vesting is just from Transaction MiningWith the hybrid roll-up technology, Metis could capture the best of both Optimism Rollups and Zero-Knowledge Rollups. The upcoming decentralized sequencer in Q1, 2024, is also a catalyst that could drive people to buy METIS, stake, and share revenue from the Metis sequencer, which has not happened before. Metis is also shifting towards building LSD protocols and RWA, which, in our opinion, are going to become huge narratives.

On December 18, 2023, Metis announced that The Metis Ecosystem Development Fund (Metis EDF) will allocate a 4.6 million METIS (~ $400M) fund dedicated to funding grants for new project deployments, product development for existing dApps, Builder Mining rewards, sequencer mining, and more. With this $400M ecosystem, the decentralized sequencer, RWA, and LSD, we expect to gain traction from both users and developers. We have already seen a bit of it with the doubling of TVL and volume in Metis chains since the announcement.

There are currently 45 protocols live on. Besides the native dApps, AAVE and Chainlink are the most notable dApps, which are important, in our opinion, as Oracle is the backbone of any chain DeFi as well as lending and borrowing protocols.

The price is already up 4X since the announcement but with the market cap of $400M and FDV of $800M, it is still an attractive bet for a Layer2.

Project Links: Website|Twitter|Discord|Coingecko

3. Skale Network:

Project Summary:

Unlike standard blockchain networks that strictly operate as either Layer 1 or Layer 2 solutions, SKALE Network presents a unique hybrid architecture. It allows each SKALE Chain to function as a base layer (Layer 1) and yet is built atop a Layer 1 blockchain (providing security and validator-node orchestration). This means SKALE Chains can swiftly process transactions with the efficiency of Layer 2 solutions and simultaneously benefit from the robust security offered by Ethereum, a Layer 1 solution characteristic.

This groundbreaking blend mitigates the usual compromise between security and scalability experienced in conventional blockchain networks. As an icing on the cake, SKALE Network even offers the customization and features promised by Layer 3 Blockchain-as-a-service via App-chains and Hub-chains.

How does SKALE do this?

The Network enables D App developers to access validator-operated nodes' compute power and storage to run fast, containerized, EVM-compatible chains called SKALE Chains. SKALE chains can exchange transactions or messages with other SKALE Chains and the Ethereum Mainnet through the native validator secured bridge (IMA), allowing dApp developers to use SKALE for powering their dApps while enabling token and message transfers to and from Ethereum or other chains.

With SKALE, dApps run zero-cost transactions on dedicated Proof-of-Stake chains distributed across a randomly chosen set of 16 nodes. Decentralized validator organizations run and maintain SKALE Nodes, providing distributed computing power and storage to the SKALE Network. Built on the foundation of its services, SKALE Network is managed and operated by over 35 smart contracts deployed on the Ethereum mainnet that make up SKALE Manager.

These smart contracts control network functions such as chain creation, validator registration, node selection, node rotation, staking, bounty payment, slashing, and more. Network users such as validators, delegators, and dApp Developers exchange SKL tokens to provide stake and access network services.

SKALE Network uses a unique combination of technologies and cryptographic-based approaches to achieve scalability, security, interoperability, and progressive decentralization:

• Pooled Validation Proof-of-Stake: Scalable security model across validators and delegators

• Hybrid container architecture: Agile allocation of on-demand composable compute resources across the network

• Threshold Cryptography: Supermajority signature signing with ABBA consensus supports Byzantine Fault Tolerance and resolves data-availability issues

• Trusted-Execution Environment: Fast block signing and multiple chain support using threshold cryptography

• Asynchronous Binary Byzantine Agreement (ABBA) Consensus: Mathematically provable, fast-finality, leaderless, and Byzantine fault-tolerant

What does SKALE offer?

• Zero gas fees - by design, developers and end-users never pay for transactions.

• Instant finality - the fastest chain to finality. Time to finality = block time.

• High performance

• Throughput - Baseline of 400 transactions per second (tps) and up to 700 tps at peak.

• High block gas limit - 280 million block gas limit allowing optimal throughput and complex transactions/smart contracts to be executed, like on-chain Machine Learning.

• Purpose-built chains- app chains and hub chains for customization and horizontal scaling.

• Native bridge - Fast flexible, offering 18-second finality between chains. Direct support for popular token standards such as ERC-20, ERC-721, and ERC-1155 with additional flexibility for passing any arbitrary data through the low-level messaging protocol.

• Native Oracle - decentralized and transaction-free Oracle enabling developers to read off-chain data.

• Decentralization and fault tolerance - chains supported by 16 randomly chosen and rotated SKALE Validator nodes, with a BFT tolerance of 1/3.

• Layered Blockchain Security - unique hybrid Layer 1/Layer 2 architecture that partially derives security from Ethereum and with the performance and decentralization of Layer 1.

SKL Tokenomics:

• Market Cap: $468,285,222

• Fully Diluted Valuation: $478,661,476

• Circulating Supply: 5,156,686,004 

• Total Supply: 5,270,947,745

• Max Supply: 7,000,000,000

 

 

 

What we like in Skale:

The vesting for private investors are done (Skale’s TGE on Dec 1, 2020). The only vesting left are from the Foundation and the Team.

SKALE offers instant finality, scalability, and zero gas-free which makes it attractive for GameFi and AI projects.

SKALE allows developers to run pre-trained AI models within smart contracts. This feature creates a seamless and trustless environment for AI operations, making it easier for developers to integrate AI functionalities into their blockchain applications. To further streamline the development process, SKALE will soon release a development support AI bot. This bot will provide instant access to technical documentation and coding support, handling simpler queries and freeing up human resources for more complex issues. This is another step in making SKALE the most developer-friendly environment for AI on the blockchain.

Some of the AI projects that are built on SKALE:

   1. Exorde: This app gathers and analyzes public content from all over the world, processing the data on IPFS and archiving it on Filecoin. Exorde performs a massive number of URL requests on-chain through AI bots. Thanks to SKALE's zero gas fee model, Exorde can execute these transactions at no cost.

   2. Chirper.ai: An AI-only social network, where users can create AI characters and observe their interactions in a simulated social media environment. By leveraging SKALE's high-performance infrastructure, Chirper.ai can seamlessly process and deliver AI-generated content, showcasing the synergy between AI technology and blockchain capabilities.

   3. Overlai‍: Overlai is an AI app that protects personal photos from being scraped by AI technologies and used in datasets without consent. It combines Distributed Ledger Technology (DLT), decentralized storage, and advanced watermarking techniques to secure users' photos. Overlay exemplifies how SKALE's blockchain capabilities can be leveraged to enhance privacy without worrying about AI's high throughput.

A report from Coingecko also shows that SKALE is the most active GameFI chain.

Project Links: Website|Twitter|Discord|Coingecko

4. Myria:

Project Summary:

Myria L2 is a layer two (L2) scaling solution, purpose-built for games and other NFT use cases on the Ethereum network. It is developed using StarkWare’s STARK prover and utilizes Zero-Knowledge Rollup (ZK-Rollup) technology to bundle large numbers of transfers into a single transaction to facilitate up to 9,000 transactions per section (TPS).

Myria’s suite of developer tools, a diverse array of Application Programming Interfaces (APIs), Software Development Kits (SDKs), and a Domain Specific Language (DSL), aims to abstract away the complexity of writing and interacting with zero-knowledge compatible smart contracts without curtailing creator ingenuity. Simply put, this means any transaction, from minting an NFT or launching a new collection to transferring or exchanging existing tokens requires no direct smart contract or network knowledge on the part of the developer. 

What Myria Offers?

• DEVELOPER APIS: Myria is building a variety of developer and administrative tools to shield developers from protocol-level complexity and ultimately make the process of integrating blockchain frictionless

• PLATFORM SDKS: To allow developers to easily build on blockchain, our high-level Myria SDK will include plugins and tools to support a variety of engines (Unity, Unreal, HTML5). Myria’s SDK offers developers an intuitive portal to seamlessly integrate with the Myria gaming ecosystem, including character and item interoperability, login/authentication, inventory management, as well as many other services to provide a deep and rich gaming and social experience.

• UNIVERSAL ORDER BOOK: Beyond being an NFT scaling solution, Myria looks to solve the order book fragmentation problem by introducing universal order books. Myria’s universal order books will allow orders created on one marketplace to be filled at another.

• COMPLIANCE: Myria’s platform and the solutions provided will be fully compliant

• MYRIA WALLET: The Myria wallet attempts to address this by providing a seamless in-browser wallet, enabling users to have custody over and manage their digital assets including tokens and NFTs. The wallet will allow players to easily buy, sell, and store tokens, as well as interact with Myria’s Marketplace and gaming ecosystem

• NFT MARKETPLACE: Myria’s NFT marketplace allows users to purchase NFTs produced by Myria Studios and other developers directly from the Myria listing, as well as those from other marketplaces connected through Myria’s universal order book.

MYRIA Tokenomics:

• Market cap: $170,910,637

• Fully diluted market cap: $521,928,899

• Circulating supply: 16,372,980,819 MYRIA

• Total supply: 50,000,000,000 MYRIA

• Max. supply: 50,000,000,000 MYRIA

 TOKEN UTILITY:

   1. Protocol Fee

   2. Myria Node Purchase

   3. Staking

   4. Governance

   5. Exclusive NFT Purchase

What we like in Myria:

• It currently stands at only an $85M market cap, which is small when compared to other GameFi Layer 2 platforms like Immutable ($2.4B market cap), BEAM ($890M market cap), and SKALE ($384M market cap). However, being a new project, most tokens are still vesting, so the FDV sits at $451M, but they don’t have a private sale for tokens. Still, they do have sales for private sales and public sales for Nodes, which would emit MYRIA in a sustainable and less damaging way compared to token sales.
• Myria is currently offering sales for their Nodes, priced at $5800 per node. The price will increase by $100 for every 100 Nodes sold, with a total cap of 40,000 Nodes. To purchase Nodes, users need to pay using $MYRIA, which will create buying pressure on the token. Running a Node is also a good way to be exposed to Myria in the long term.
• They have a huge Ecosystem Fund (40%) that could be used to grant GameFi projects to build on Myria. There are already more than 100 GameFi projects that are building on Myria
• Similar to SKALE, Myria offers high transaction speeds and zero gas fees, which are essential for GameFi projects.

Project Links: Website|Twitter|Discord|Coingecko

_{5. Rollux:}

Project Summary:

Rollux is built by SYS Labs and fueled by $SYS. Rollux is the optimistic rollup that serves as Syscoin's official Layer 2. Based upon Optimism Bedrock, Rollux provides EVM equivalence and is close to 1:1 parity with standard EVM. 

Unlike Optimism which must expensively store blocks on the Ethereum L1 as calldata, Rollux L2 blocks are stored via Syscoin's Layer 1 PoDA protocol (Proof-of-Data-Availability). Proof of the block is stored on Syscoin's native (UTXO) blockchain, and the entirety of the raw block data is stored in the cloud via Syscoin full nodes that also function as PoDA cloud clients.

In brief, PoDA already provides several benefits over Ethereum's work-in-progress and future DA solution (proto-dank sharding):

1. PoDA does not need to share data. Every full node processes the blob fully.

• Trust yourself only

• Fewer attack vectors, more resistant to censorship

• Data is simple to reproduce and check

• Syscoin can prune data much quicker, and tie in pruning with finality + 6 hours.

2. PoDA uses Keccak-based blobs instead of KZG commitments.

• No trusted setup

• Quantum safe

• Very performant

Rollux is already primed to support L3s and fractal scaling with proper data availability. This is because Rollux offers its own implementation of PoDA natively. This means other layers can use Rollux for data availability. Rollux PoDA handles data storage in a similar manner as Syscoin, with the added benefits of more throughput and even lower costs. Fractal layers using Rollux also inherit the security of Syscoin's L1, as Rollux stores its own block data there.

Rollux inherits Bitcoin security by deploying Syscoin on the base settlement layer. Syscoin is a dual-chain (EVM + UTXO) blockchain project that uses merge mining to deploy over 30% of Bitcoin’s security and continues to grow. Merged mining, also known as Auxiliary Proof-of-Work or simply AuxPoW, allows mining multiple blockchains at the same time without adding extra hashing costs or diminishing the rewards of the primary coin being mined.

Rollux is built on Bitcoin and Syscoin to get the best of both blockchains. Bitcoin provides security and decentralization, and Syscoin provides EVM compatibility and a robust dual-chain design to handle the global demand for the exchange of value.

SYS Tokenomics:

• Market Cap: $89,339,140 

• Fully Diluted Valuation: $91,094,748

• Circulating Supply: 724,246,564 

• Total Supply: 738,478,764

• Max Supply: ∞

SYS has been in existence since 2014; hence, we won't focus extensively on Tokenomics, as all tokens are fully vested. It's important to note that the max supply is uncapped, the supply of SYS is dynamically and programmatically managed through protocol emission and deflationary burning of fees paid for NEVM transactions.

What we like in Rollux(Syscoin):

With the introduction of Bitcoin ETFs, the Bitcoin ecosystem has recently gained significant traction, particularly in Bitcoin layer 2 solutions like STX ($2.5B) or ORDI ($1.45B). Although ORDI isn't a Bitcoin Layer 2, we can still observe people's reactions to Bitcoin beta coins.  Other Layer 3(known as Rollapps) can leverage Rollux's data availability for cheaper and faster transactions. This trend is evident with Celestia; some projects, layers 2, or Rollapps seeking scalability and reduced data availability costs are switching to use Celestia's data availability.

You can see in the picture below, that a comparison between Rollux and Optimism reveals a reduction of up to 99.9% in both gas fees for users and the cost of data availability for projects.

Numerous projects are embracing the modular thesis at the moment. Modular structure will make building Layer 1, Layer 2, and Rollaps as convenient as a few clicks, significantly enhancing scalability while massively reducing the cost to create, run, and maintain them. This makes blockchain development become as simple as creating a website today.

We believe Rollux has the potential to capture both the Bitcoin Layer 2 and Modular narrative, which we think will be the major narratives in blockchain. And with only an $89M market cap, Rollux is an undervalued gem.

Project Links: Website|Twitter|Discord|Coingecko