Arbitrum vs Optimism vs Polygon: Which Layer 2 Solution Is Better?

Polygon, Arbitrum, Optimism — each of them promises to tackle Ethereum’s main sticking points. But how do they go about dealing with them, and, more importantly, which one should you choose for your own project?

Ethereum is currently the most popular blockchain in the crypto community, with a market cap of more than $200 billion. Each year more and more decentralized applications, or dApps, are built on top of it. However, the platform clearly was not ready for this uptick in the number of users and transactions. The result has been poor scalability and enormous transaction fees.

Layer 2 solutions like Polygon, Arbitrum and Optimism were designed specifically to address all the challenges of Ethereum. But the question is this: which of the three does so in the most efficient way?

Read on to discover the key advantages and disadvantages of all three platforms, and, to help you come to a conclusion, check out our Polygon vs Arbitrum vs Optimism comparison.

What is a Layer 2 protocol?

Layer 2 refers to a series of different protocols that are designed to facilitate the creation of smart contracts on the Ethereum main chain, commonly known as Layer 1. So, while Layer 1 apps and smart contracts deal directly with the main chain, Layer 2 solutions operate on top of the core Ethereum blockchain.

Why exactly does Ethereum need scaling protocols? Ethereum is known to be a secure solution, but this security comes at a cost. Based on the Proof of Work (PoW) consensus algorithm, the platform suffers from inefficiencies such as slow transactions and high gas fees. When a transaction occurs on the platform, each node in the network has to process it, which ultimately results in a scalability bottleneck.

On average, Ethereum processes about 13-15 transactions per second (TPS), while the cost for the transaction could reach $200. That is why users like to search for new platforms that don’t impose such a heavy financial burden on them.

Ethereum Layer 2 scaling solutions help free up the platform by taking transactions off the main chain, offloading them to Layer 2, and then posting transaction data back to Layer 1. This way the Ethereum blockchain can ensure better scalability, higher transaction processing capacity, and lower gas fees. Meanwhile, as the transaction data is placed on Layer 1, it is secured by the same Layer 1 security measures.

This combination of Layer 1 and Layer 2 means you can benefit from scalability and increased throughput while retaining the integrity of the Ethereum network, allowing for complete decentralization and better security.

Introduction to sidechains: Polygon

Polygon, formerly known as Matic Network, is a Layer 2 scaling solution that runs alongside Ethereum and enables the connecting and building of networks compatible with Ethereum.

It’s important to differentiate Polygon from other Layer 2 solutions like Arbitrum and Optimism since Polygon is technically a sidechain. The difference is that Layer 2 solutions are fully secured by the Ethereum platform, while side chains use their own consensus algorithms. So, sidechains are independent, EVM-compatible solutions that run in parallel with the mainnet.

When it comes to Polygon, it is based on the Proof of Stake (PoS) consensus mechanism, which has multiple benefits over PoW — such as faster transactions and lower gas fees. For instance, Polygon has the capacity to process up to 65,000 TPS, outperforming Ethereum by a factor of five.

Polygon also applies a layer 2 scaling technology named Plasma, as well as ZK-rollups and Optimistic Rollups, the scaling solutions that allow the platform to validate transactions almost in real time.

The platform has its native token, called MATIC. To use Polygon, you will need to swap ETH for MATIC over a chain bridge that leverages a lock and mint mechanism allowing you to deposit your ETH. Once it gets locked in the smart contract, Polygon mints you an equal amount of MATIC tokens when going through the chain bridge the other way, from MATIC to ETH. The MATIC tokens are then destroyed while ETH is released from the smart contract.

On Polygon, token withdrawals take from several hours to a week depending on the chain bridge being used. For example, using the PoS bridge, the withdrawal will take roughly three hours; using the Plasma bridge, this could increase to seven days.

The main advantage of sidechains is that they ensure flexibility, enabling developers to add new features or software updates before pushing them on the main chain.

Nevertheless, they have their drawbacks as well, such as lower security. Being separate blockchains, they do not have the security of Layer 1. If they are hacked, though, the damage will be contained within this chain while the main chain will not be affected. At the same time, if the main chain is compromised, sidechains can still operate.

Introduction to Optimistic Rollups: Arbitrum and Optimism

Both Arbitrum and Optimism fall into the category of Optimistic Rollups — another Layer 2 protocol aimed at solving Ethereum’s scalability problem. The term rollup is used to explain the way the chain bundles many transactions to submit to the main chain.

Understanding Optimistic Rollups

Optimistic Rollups differ from sidechains in the way that rollups interact with the main chain and use smart contracts that reside within Ethereum. This produces their main benefit — the potential to inherit both Ethereum’s security features and its secure consensus mechanism.

Another advantage of Optimistic Rollups is that they use the existing Ethereum tooling. This means that there is no need for a long onboarding process, as developers can quickly start building apps using Optimistic Rollups.

Optimistic Rollups owe their name to the fact that the transaction data transmitted back to the main chain is not initially checked. They do not perform any computation but assume that transactions are valid and that aggregators, block producers in the Optimistic Rollups ecosystem, work without cheating.

Optimistic Rollups rely on fraud proofs to dispute fraudulent transactions, should such cases occur. So, if someone says that the data is invalid, then the computations will be checked. They can be verified through cryptography and, if it turns out that fraud has taken place, the fraudulent transactions will be rolled back while those who committed the fraud get ejected.

And this leads us to the main disadvantage of Optimistic Rollups — long wait times for on-chain transactions due to potential fraud challenges.

Now that we’ve got our heads around Optimistic Rollups, let’s take a look at their main representatives, Arbitrum and Optimism respectively, and dive deep into the differences between the two Ethereum scaling solutions.

What is Arbitrum?

Arbitrum describes itself as a Layer 2 platform that aims to improve Ethereum smart contracts by streamlining their transactions and boosting scalability while adding more privacy features.

It enables developers to run unmodified EVM contracts and Ethereum transactions on a second layer while leveraging Ethereum to ensure correct results and to benefit from its excellent security.

The platform has proved to be the leading player among Ethereum Layer 2 scaling solutions. Footprint Analysis states that in June 2022 it has contributed 50,88% of all Layer 2 total value locked.

What is Optimism?

Optimism is a Layer 2 scaling protocol for Ethereum apps which aims to make transactions affordable and accessible to anyone. Optimism is compatible with EVM and is designed on the principles of simplicity, pragmatism and sustainability.

Optimism looks, feels and behaves as Ethereum, yet it is cheaper and faster. According to Footprint Analysis, Optimism has contributed to 16,92% of all Layer 2 total value locked, as of June 2022.

Arbitrum vs Optimism: what are the differences between these two?

Although both Arbitrum and Optimism use the same technology of Optimistic Rollups, the platforms have some fundamental differences in the way they function, particularly in respect to bridging and fraud proof verification.

Take a look at the Optimism vs Arbitrum comparison table below to quickly grasp the key differences.

Fraud proof verification

When dealing with suspicious transactions, Optimism sends the entire transaction again through the EVM, so the fraud proof verification is instant. At the same time, the result is higher cost, since on-chain Layer 1 execution requires more gas. Moreover, the Layer 2 fee is limited by the Layer 1 gas block.

As for Arbitrum, it processes suspicious transactions off-chain by sending only the suspicious part within a transaction back to the EVM. Although it takes more time to narrow down the point of dispute and detect what is suspect, Arbitrum can boast higher transaction capacity compared to Optimism. So, in this particular Arbitrum vs Optimism battle, the former scores the first point.

Bridging and native tokens

Both platforms apply bridges to interact with other blockchains and ensure the flow of tokens. However, Arbitrum uses a permissionless bridge for all tokens, whereas Optimism deploys dedicated bridges based on the market demands.

As for the native tokens, Optimistic Rollups generally use Ethereum tokens. However, Optimism has recently announced the airdrop of the OP token, its new governance token, while Arbitrum still provides native ETH support.

Dependence on EVM

Arbitrum has its own virtual machine, Arbitrum Virtual Machine, which reduces its dependence on EVM. In Optimism, all transactions are processed through EVM, so if Ethereum receives a major consensus overhaul, re-executing Layer 1 transactions would result in divergent final states.

This explains why Optimism is currently working towards a new fraud proof verification model, to act as an EVM equivalent. EVM compatible differs from EVM equivalent in the sense that the former does the processing on the EVM while the latter uses a compatible virtual machine like the aforementioned Arbitrum Virtual Machine.

Arbitrum vs Optimism vs Polygon: key differences

Although Arbitrum, Polygon and Optimism all are aimed at providing better scalability to Ethereum, there are differences in their ecosystems and level of decentralization, as well as the ways they function, including consensus mechanisms, speed of transactions, and gas fees.

Before reading a more detailed comparison, you can examine the Polygon vs Arbitrum vs Optimism comparison table below, which displays the main differences between the platforms.

You can also find a detailed comparison of the three Layer 2 platforms in our video. In it, our business analyst compares Polygon, Arbitrum, and Optimism in detail.

Ecosystem

Established in 2017, Polygon quickly gained trust among companies of all sizes that started to build dApps on top of the platform. At present, there are 19,000 dApps built on the Polygon blockchain, with the most popular ones being QuickSwap, Decentralized games, Dfyn Network, Pegaxy, and Sorbet Finance.

At the same time, Polygon has seen a significant decrease in the total value locked. At the beginning of 2022, the platform had around $5 billion in TVL whereas in May 2022 it was estimated at about $2,50 billion, meaning that the platform lost more than $2 billion. This decrease is generally explained by the fact that Polygon’s dApps fell to new lows. For instance, Aave has fallen by more than 31% while Curve has lost more than 30% of its TVL.

Optimism was established in 2021 and currently has 15 dApps, with the most prominent ones being the Synthetix ecosystem with $147 million in total value locked and Lyra with $67,43 million in total value locked.

As for the Arbitrum solution, it was introduced to the market in 2021 and now has 228 live projects, with the most popular categories being swapping and lending. Some of their interesting projects include Curve, Cream Finance, and Uniswap.

Consensus algorithm

Polygon leverages the Proof of Stake consensus algorithm, which provides increased scalability and lower gas fees. To participate in the consensus process, users need to stake Polygon’s MATIC tokens to indicate their commitment to the process.

The bridge relay mechanism is run by the Polygon PoS validators. At least two-thirds of the validators need to agree on the locked token event on Ethereum in order to go on and mint the corresponding amount of tokens on the Polygon blockchain.

Neither Optimism nor Arbitrum have their consensus mechanisms. These Ethereum scaling solutions take advantage of the consensus mechanism of their parent chain instead of providing their own.

Token withdrawals

If we compare Arbitrum vs Optimism vs Polygon by their token withdrawal time, we’ll see that the Polygon blockchain is faster than its competitors.

Withdrawal through the Optimism Gateway is a multi-step process, which may take from 7 days or more. With Arbitrum, the withdrawals can take 2 weeks, while those on Polygon through the PoS bridge will be completed in just 3 hours.

Decentralization

In terms of decentralization, Arbitrum and Optimism occupy safer positions since they are secured by Ethereum’s widely distributed network of miners.

In contrast, the Polygon blockchain is secured by MATIC staking, which is a smaller pool of capital if we compare it to the miners who are securing the Ethereum platform.

Scalability and transaction fees

Ethereum’s slow speed of transaction and huge gas fees were the key reasons behind the creation of Ethereum Layer 2 scaling solutions. So how do Arbitrum, Polygon and Optimism deal with these problems?

Based on the PoS consensus algorithm, Polygon is able to process up to 65,000 transactions per second, while maintaining low fees. They range between $0,1-0,5.

Arbitrum allows for 40,000 transactions per second, with gas fees ranging between $0,5-0,7 according to Layer 2 data aggregator L2 Fees.

Optimism has the capacity to process up to 2,000 transactions per second. According to L2 Fees data, Optimism transaction fees are slightly higher compared to Arbitrum and range from $0,6 to $0,9.

Will Ethereum 2.0 make Layer 2 solutions irrelevant?

Ethereum is currently in the process of updating to Ethereum 2.0 — a more efficient and scalable solution leveraging the Beacon Chain and shard chains. Ethereum 2.0 is not likely to go live till 2023, although it is already raising questions about whether there is still a need for Ethereum scaling solutions.

The point to note here is that not all Layer 2 solutions are aimed at substituting Ethereum. Instead, their goals are to enhance the platform and make it more efficient. And they will continue to do this even after the update.

Ethereum 2.0 may still not be able to handle the large number of transactions per second necessary if it’s to be widely adopted. Therefore, the platform is likely to coexist with Layer 2 solutions, which will help to ensure increased efficiency and prevent congestion on the main chain.

Which Layer 2 solution should you choose for your project?

When choosing Layer 2 for your project, the golden rule is to start with the analysis of your business requirements. You need to identify your key goals and priorities, at the same time as defining the functionality that matters most to your project.

For example, if you prioritize scalability, then Polygon would appear to be a reasonable choice as it is faster compared to Optimism and Arbitrum. If you are developing a complex solution with a comprehensive toolset, Polygon is again right for you. Having been established back in 2017, the protocol has been well studied and benefits from a large ecosystem.

Besides this, you need to understand that Polygon has become a stand-alone protocol that can function without the main network. Optimism and Arbitrum, on the other hand, are rollups that rely on the main network.

As both Arbitrum and Optimism leverage Ethereum’s PoW, these Layer 2 solutions can help you to ensure increased security for your project. However, of the two, Arbitrum is more popular on the market and by far the most trafficked one. Yet Arbitrum is not suitable for investors who need to withdraw their crypto assets, as it would take them about two weeks to retrieve funds (compared to just three hours to do the same on Polygon).

Businesses building an NFT project should evaluate how extensive the ecosystem is in terms of NFTs, whether or not the platform supports NFT minting, and the NFT minting cost. If you want your NFTs to be traded outside the platform on third-party marketplaces, then it is better to select Polygon as it is supported by the largest NFT marketplaces.

Closing thoughts

By comparing Arbitrum vs Optimism vs Polygon, we can say that they all bring scalability to Ethereum and offer an alternative to its exorbitant transaction costs. Even so, each of them tackles Ethereum’s challenges in its own way.

When choosing Layer 2, you should do research on the characteristics that matter most to your business. It would be wise to consider such factors as the size of the platform’s ecosystem, how many transactions it can handle per second, and how much time it will take to withdraw tokens. Then, you will need to align these characteristics with your project goals.

If you struggle to make the right decision or have a complex project in mind, you can partner with blockchain consultants, someone like…ummm…oh yes, our team! Fifteen years of experience, 450+ projects, and certified consultants and developers on board have left us equipped to deliver successful solutions to our clients.

Selecting Layer 2: Polygon vs Arbitrum vs Optimism

What is a Layer 2 protocol?

Introduction to sidechains: Polygon