Kraken seeking partnerships to build Layer 2 network

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Kraken, a major U.S. crypto exchange, is exploring partnerships with top blockchain technology companies to establish a Layer 2 network, sources informed CoinDesk.

Kraken is considering Polygon, Matter Labs, Nil Foundation and possibly other teams for their new network, as confirmed by a Kraken spokesperson.

“We’re always looking to identify and solve for new industry challenges and opportunities,” a Kraken spokesperson said. “We don’t have anything further to share at this time.”

Kraken’s plan follows similar initiatives by other major initiatives. In August, Coinbase launched a Layer 2 network called Base, built on the OP Stack. The technology is developed by the OP Labs team, the creators of Optimism, the second-largest Layer 2 network on the Ethereum blockchain.

Earlier this year, Polygon, a leading Ethereum scaling solutions developer, introduced a software toolkit for blockchain developers. Later, Matter Labs, the creator of the zkSync Layer 2 network, announced a similar move.

Kraken has posted a job opening on its website for a “Senior Cryptography Engineer,” who is required to have expertise in modern cryptography, including ZK proofs. This role might involve working on the design and implementation of its Layer 2 solutions.

“We are enthusiastic about open source, layer 2 technologies, zero-knowledge proofs, multi-party computation, and continuously strive to explore the potential of on-chain scaling solutions,” the job description reads. “The team has recently embarked on exploring how more protocols and decentralized applications can be integrated into Kraken.”

Layer 2 functions

Layer 2 protocols create a separate transaction space distinct from Layer 1. This allows much of the main chain’s work to be shifted to this second layer. Layer 2 applications then transfer transaction data to Layer 1, securely recorded in the blockchain ledger and history.

Layer-2 solutions also differ in their accessibility. Some are open to various applications, while others serve specific projects. Key components utilized by a Layer 2 network include rollups and sidechains.

A rollup is a Layer 2 solution that processes numerous transactions separately from Layer 1, compresses the data and then shares them on the mainnet for review and potential disputes. Rollups enhance security and can significantly lower gas fees by 10-100 times.

Different roll-up mechanisms have slight differences in how they return data to layer 1. Optimistic rollups allow everything done on layer 1 to be reproduced on layer 2. Notable Optimistic rollups include Arbitrum, Optimism and Boba.

Unlike Optimistic rollups, ZK rollups use cryptographic proofs to confirm transaction authenticity. These proofs, known as validity proofs or SNARKs (succinct non-interactive argument of knowledge) or STARKs (scalable transparent argument of knowledge), are posted on layer 1.

Ethereum transaction volumes surge due to increased efficiency in L2 solutions

In other news from the market, Ethereum’s transaction volumes have exceeded $229 billion. This surge is attributed to $213 billion in mainnet transactions and $16 billion from Layer 2 solutions like Arbitrum, Optimism and Base. This increased economic activity has led to higher transaction fees, driven by growing demand and potential network congestion.

Ethereum is burning a significant amount of 855,000 ETH annually, decreasing its supply, which might positively affect its long-term value. This reduced supply, combined with the improved efficiency of Layer 2 solutions, is generating a sense of optimism in the market.

Ethereum’s strong price movement reflects ongoing buyer interest. The cryptocurrency’s performance is currently above its moving averages and has exceeded local resistance levels, which is a typical sign of an upward trend.