Do L2 protocols pose less risk for generating higher returns for yield farmers?

Asked 2 years ago

So the layer 2 protocols on DeFi networks sound great. However, I'm worried about the risks this protocol brings to crypto trading platforms. I currently stake my Ethereum in various liquidity pools using yield farming, and many, if not all, of the DeFi networks, are upgrading to layer 2. Do the higher interest rates come with the same amount of risk, less, or more?

Rodney Pearson

Sunday, August 14, 2022

Layer-2 protocols are designed to be faster and more efficient than their layer-1 counterparts. To be this fast and efficient, L2 protocols must sacrifice security. Of course, this doesn't mean that L2 solutions are not safe, they're just less safe than L1 solutions. The interest rate in question doesn't have an inherent effect on the safety of the protocol, but keep in mind that higher interest rates usually means higher risks.

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