It might be too late to capture some of the remarkable upside potential of Ethereum, which is still up more than 41,000% since its launch in 2015. But it’s not too late to capture some of the explosive potential of smaller, super-cheap cryptos that are directly leveraged to the future success of Ethereum.
These cryptos are known as Layer 2 scaling solutions because they sit on top of the main Ethereum base layer and help to make it more scalable. That means cheaper transaction fees, faster processing times, and less network congestion. The best-known Layer 2 is Polygon (CRYPTO: MATIC), but there are two others — Optimism (CRYPTO: OP) and ImmutableX (CRYPTO: IMX) — that may also have true breakout potential in the wake of The Merge. Let’s take a closer look at these to see if any of them might be a good fit for your portfolio.
Polygon
Polygon has emerged as the most popular, best-known Layer 2 scaling solution for Ethereum. Polygon has partnered with some of the biggest brands and companies in the world on new non-fungible token (NFT) projects. A great example is Instagram, owned by Meta Platforms, which chose Polygon for its new NFT platform. Thanks to Polygon, Instagram users will be able to mint, showcase, and sell their NFTs. Polygon has also partnered with Starbucks on an NFT-powered brand loyalty program and with JPMorgan Chase on a new trading project.
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What makes things exciting for Polygon is that the best might be still yet to come. Polygon is still trading at just $1.23, and some are predicting 200% returns for the cryptocurrency. Less than 12 months ago, Polygon was trading at an all-time high of $2.92, so these anticipated returns are not as outlandish as they might first appear. Due to its recent surge in price, Polygon is now one of the top 10 cryptos in the world by market capitalization.
Optimism
Optimism is not nearly as well known as Polygon, but it still ranks as a top 120 crypto by market capitalization. That’s not too shabby, considering that Optimism only started trading on Coinbase Global on May 31. Now trading around $0.98, Optimism has turned in some truly blistering performances recently. For example, at the end of October, Optimism spiked 78% in a single week, sending the crypto from $0.64 to $1.14. That is the type of explosive potential that excites investors.
For Optimism, the key metric to watch is total value locked (TVL), which is a measure of how much activity is happening on a blockchain. At the end of October, Optimism had crossed the $1 billion TVL threshold, a further sign that this is an extremely fast-growing Layer 2 that many investors may be overlooking. In the lead-up to The Merge, for example, TVL on Optimism was spiking nearly 300% on a month-over-month basis.
ImmutableX
Finally, we have ImmutableX, a Layer 2 scaling solution that is making waves in the Web3 gaming world. For example, ImmutableX recently partnered with GameStop on a gaming NFT marketplace. On GameStop’s marketplace, gamers can buy and sell NFTs related to popular games such as Gods Unchained, Illuvium, and Guild of Guardians.
Currently, ImmutableX is trading for a super-cheap price of $0.44, a far cry from its all-time-high of $9.50. It is a stealth candidate to explode due to the huge potential cost savings it can offer users. ImmutableX, for example, is the only zero transaction-fee NFT minting platform, which has made it a huge hit with gamers. This year, over 52 million NFTs have been minted on ImmutableX.
Risk vs. reward
There is obviously tremendous risk and volatility involved in investing in Layer 2 scaling solutions. Risk-averse investors might be better off investing in Ethereum, which is by comparison a much safer investment. The problem with investing in Layer 2 cryptos is that it can be hard to pick the right winner. Currently, Polygon stands out as the clear winner, but remember: An upstart can come along and disrupt the market entirely if it has superior technology. While these are three of the best Layer 2 cryptos for Ethereum, they are hardly the only ones.
That being said, it’s hard to ignore the explosive potential of these Layer 2 cryptos. You’re essentially placing an indirect bet on the future of Ethereum at a bargain-basement price. Ethereum co-founder Vitalik Buterin has already said that Layer 2 scaling solutions will be central to the future of Ethereum for years to come. Thus, if you believe in the future of Ethereum, there is reason to believe in the future of Ethereum Layer 2 cryptos.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Dominic Basulto has positions in Ethereum and Polygon. The Motley Fool has positions in and recommends Coinbase Global, Inc., Ethereum, Immutable X, JPMorgan Chase, Meta Platforms, Inc., Polygon, and Starbucks. The Motley Fool recommends the following options: short January 2023 $92.50 puts on Starbucks. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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