Stablecoin Payments in Layer 2s: Fast, Cheap, and Scalable on Arbitrum, Base & Optimism

Introduction

Stablecoins have become one of the most important assets of the crypto world. As the name suggests, they offer the stability that many desire in the volatile world of cryptocurrencies, while also providing great exposure to the upside of crypto in a dollar-based form. But there have been challenges and the smoothness that stablecoin is supposed to provide has been hampered by the shortcomings of Layer-1 blockchains, like Ethereum, where congestion, high gas fees and slow transaction throughout make everyday payments unthinkable. To make stablecoins–which are essentially the positive sides for digital dollars–even more useful, the industry has begun to look toward Layer-2 (L2) solutions for them–secondary protocols layered on top of existing blockchains to enable faster, more efficient transactions.

Why are Layer-2 solutions relevant?

Below listed are the reasons why layer-2 solutions are certainly a game changer in the crypto world;

Layer-2 networks are built to take the load off of the Ethereum mainnet for transaction processing\footnote (where they still benefit from the security provided by the mainnet). These networks perform transactions off-chain, then periodically post cryptographic proofs of those transactions to the main chain. Such architecture greatly improves the scalability while preserving trust and decentralization of Ethereum.

For stablecoins, digital assets that are pegged to fiat currencies, this architecture is a game changer. Low-fee stablecoin transfers, high throughput and near-instant confirmation times will make stablecoins more suitable for consumer payments, cross-border remittances, merchant settlements and on-chain commerce.

Arbitrum stablecoin transactions: The upward graph for Layer-2 Stablecoin Transactions

Arbitrum is a layer 2 solution designed to improve the capabilities of Ethereum smart contracts — boosting their speed and scalability, while adding in additional privacy features to boot.

The platform is designed to allow developers to easily run unmodified Ethereum Virtual Machine (EVM) contracts and Ethereum transactions on a second layer, while still benefiting from Ethereum's excellent layer 1 security.

It’s built to address some of the shortcomings of current Ethereum-based smart contracts — such as poor efficiency and high execution costs — which have damaged the Ethereum user experience and frequently make transacting an expensive task.

Arbitrum uses a technique known as optimistic rollups. Transactions are executed off-chain, before being bundled in large batches and submitted on the Ethereum mainnet as calldata. This process helps to offload most of the computational and storage burden Ethereum currently suffers from, by moving them off-chain.

Each batch incurs fixed transaction costs on Ethereum, which are spread across each transaction on Arbitrum, lowering the cost for end-users. Off-chain transactions are assumed to be valid, hence the name "optimistic," and there is a challenge period for anyone to dispute the transaction by posting a fraud proof.

How Does Arbitrum Work?

Arbitrum is a type of technology known as an optimistic rollup. It allows Ethereum smart contracts to scale by passing messages between smart contracts on the Ethereum main chain and those on the Arbitrum second layer chain. Much of the transaction processing is completed on the second layer and the results of this are recorded on the main chain — drastically improving speed and efficiency.

It’s optimistic in the sense that any validator is able to post a rollup block and confirm the validity of other blocks, while the term rollup is used to describe how public information can be used to reconstruct a complete history of the chain from an optimized log of events. The Arbitrum protocol ensures that code will run correctly (i.e. as intended) so long as any validator is honest, helping the network resist collusion and other forms of attack.

As with many blockchains, individual nodes can choose to participate in the Arbitrum chain. Validator nodes are involved in observing the state of the chain, and full nodes help to aggregate layer 1 transactions. Aggregators that submit transactions to the layer 1 chain earn rewards paid in ETH, while the rest of the user transaction fees are distributed to other network participants — such as validators.

Arbitrum introduces a challenge step for rollup blocks, which sees other validators check the correctness of a block and issue a challenge if they believe it is wrong. If the block is proven to be incorrect or a challenge is proven unjustified, the lying validator will have their stake confiscated, ensuring validators always play fair or risk the consequences.

The platform also has its own custom virtual machine, aptly named the Arbitrum Virtual Machine (AVM). This is the execution environment for Arbitrum smart contracts and exists above the EthBridge — the set of smart contracts that interfaces with the Arbitrum chain. Ethereum-compatible smart contracts are automatically translated to run on the AVM.

Also read: Business Use Cases for Stablecoins: From Remittances to Treasury

Base: The Breakout Performer in Stablecoin Layer-2 Growth

Unusual among all of these Layer 2 solutions, however, Base is supported by a publicly traded company, in the form of Coinbase, and that sets Base apart in the Layer-2 space. Base is constructed atop Optimism’s OP Stack but includes more integrated exchange hooks and is more retail focused.

The role of TransFi in Layer-2 Stablecoin Payments

As stablecoin infrastructure continues to grow on Base, Arbitrum and Optimism, they are looking for scalable solutions to integrate these payment layers into their operations. TransFi provides that bridge. It allows developers and businesses to build on Layer 2 stablecoin transactions, connect to fiat onramps and send payments across chains without having to build the infrastructure themselves.

If you’re building a dApp on Base, launching a payment platform on Arbitrum, or dealing with cross-border remittances via Optimism, TransFi helps abstract away infrastructure and liquidity worries. As the stablecoin market continues to expand, platforms such as TransFi will increasingly play a critical role in promoting convenience and leveraging the stablecoin’s potential – for both users and creators alike.

The Future of Scalable Digital Dollar Infrastructure

Increasing adoption of stablecoins on L2s suggests a transition from speculative use to actual financial use. As Base and others like them continue to work at demystifying the blockchain, it is being made increasingly accessible to mainstream users, businesses, and global commerce platforms.

If Ethereum becomes a data availability and settlement layer and if there is execution scalability on L2s, stablecoins could be as frictionless as email: transmissible all across the world in seconds for pennies.

Conclusion

Ethereum is an incredibly popular platform for developing decentralized applications (DApps). But in recent years, a dramatic surge in adoption has seen the network pushed to its absolute limits — sending transaction fees through the roof and leading to rampant congestion.

While some circles believe that the best way to scale Ethereum is through on-chain tweaks and upgrades, others are instead pursuing different routes, known as second layer solutions.

Though these vary significantly in their form and function, Arbitrum as a viable solution has begun picking up considerable momentum due to its novel solution to the problem.

The blossoming of stablecoin Layer-2 networks is a watershed moment in the blockchain scalability story. As real-world volumes now begin to feed through Arbitrum, Optimism, and Base, we are seeing the early signs of a stablecoin economy designed for global scale, driven not by hype, but by the quiet efficiency of “new-age” infrastructure.

For users and businesses, the evolution provides a compelling argument: a better, faster and cheaper way to move money, and it’s about to finally have its moment.

Frequently asked questions (FAQs)

What is a Layer-2 solution for stablecoins?

Layer-2 solutions are protocols that sit atop Layer-1 chains, like Ethereum, which conduct transactions faster and more cheaply. They let stablecoins move quickly and more cheaply while still being secured by Ethereum.

How do stablecoins fare on Arbitrum and Optimism?

These networks batch transactions, perform them off-chain and post compressed proofs to Ethereum using rollups. And that increases the amount of transactions that can be done in a cheaper way.

Why are Layer-2 networks embracing stablecoin adoption?

L2s are gaining popularity with stablecoins, because they offer lower fees, faster confirmation times and greater scalability. This makes them more apt for everyday payments, remittances, and commercialization.

Can businesses take payments in stablecoins on L2s?

Yes. Platforms such as TransFi enable businesses to easily accept, route and settle stablecoin payments on L2 networks without requiring significant blockchain expertise.

What makes Base special in the Layer-2 stablecoin space?

Base is developed by Coinbase, it has excellent user authentication and fits with integrations. It provides the fastest and lowest-fee stablecoin solution of any major L2 ecosystem and has been growing at the fastest pace of any stability platform.

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