Why ETH L2s Matter for Institutions
Adopting any new technology necessitates critical evaluation regarding control, speed, and privacy. For institutions, Ethereum Layer 2 (L2) solutions address these concerns comprehensively, offering a bridge between the decentralized nature of public blockchains and the stringent requirements of enterprise operations.
Institutions are moving from pilots to production. @Ethereum settles; L2s scale, add privacy & customization.
New report with @Etherealize_io & @Nethermind :
🔸 Why now, what L2s are, what institutions need
🔹 How to choose & operate: settle on Ethereum, run on L2sRead more 👇 pic.twitter.com/JRod9IRC6b
— L2BEAT 💗 (@l2beat) December 4, 2025
Ownership and Control
Ethereum Layer 2 solutions liberate institutions from the binary choice between public blockchains and private infrastructure. These L2s empower them to establish and manage their own networks, granting granular control over transaction ordering, data storage protocols, and access management. This allows for seamless alignment of L2 operations with internal governance frameworks and ensures adherence to network-level compliance mandates.
Operating an L2 solution also provides institutions with a performance guarantee, characterized by low latency and high network uptime. Furthermore, it opens avenues for generating revenue through transaction fees and the provision of premium services, transforming infrastructure from a cost center into a profit driver. Private ETH L2s can leverage the security and liquidity of the public Ethereum network for settlement purposes.
“We see a lot of demand for L2s from banks, fintechs and enterprises but most can’t built on a public chain due to privacy and compliance reasons” @gluk64 , at the recent @EFDevcon , commenting on Ethereum’s L2 roadmap and the PMF signs of specialized chains. pic.twitter.com/IKmFYcJS4z
— ZKsync (@zksync) December 2, 2025
Privacy and Confidentiality
Maintaining the confidentiality of proprietary trading strategies and sensitive client information is paramount for institutions. ETH L2s provide a permissioned environment, restricting access to authorized users only. Advanced features like selective disclosure also enable regulatory bodies to access necessary sensitive information without compromising its public visibility.
The integration of zero-knowledge proofs further enhances compliance verification by allowing for validation without revealing the underlying confidential data. This mechanism ensures that institutions can uphold strict confidentiality while simultaneously maintaining transparency where required.
Data Availability, Storage, and Auditability
ETH L2s significantly enhance regulatory reporting and record-keeping processes. The inherent data availability features ensure that institutions have ready access to historical transaction data necessary for compliance. Furthermore, options for on-chain or off-chain data storage enable institutions to establish tamper-proof and immutable records.
The use of cryptographic proofs streamlines the auditing process, replacing manual checks with verifiable, automated verification. This leads to a reduction in operational and compliance risks, fostering greater trust and reliability with regulatory bodies.
The next financial system is being built now. @Ethereum is the foundation of institutional finance.
L2s unlock scalability, privacy, & compliance – enabling institutions to deploy at scale.
We’ve teamed up with @Etherealize_io + @l2beat to explain why. 🧵 pic.twitter.com/YrqFiXJbzS
— Nethermind (@Nethermind) December 4, 2025
Cost Reduction and Revenue Opportunities
Layer 2 solutions significantly reduce operational expenses by batching transactions, thereby circumventing the high gas fees typically associated with the Ethereum mainnet. This efficiency allows L2 networks to generate revenue not only from their own applications but also by supporting third-party or specialized applications. Consequently, the blockchain ecosystem transforms from a cost center into a potential revenue-generating platform for institutions.
Customizability and Composability
These L2 solutions offer institutions the flexibility to customize their systems while maintaining a vital connection to the broader Ethereum network. This includes the ability to define specific permissions, enforce compliance rules, and optimize performance parameters. Concurrently, they retain interoperability with other L2 networks, decentralized finance (DeFi) platforms, and mainnet assets, enabling institutions to operate with a high degree of privacy while still accessing public markets when necessary.
Compliance and Regulatory Alignment
The Ethereum network is increasingly incorporating features that facilitate compliance. On-chain identity verification mechanisms can be implemented to authenticate participants before they engage in transactions. Furthermore, the interoperability with other L2s, DeFi platforms, and mainnet assets ensures a cohesive regulatory environment. Initiatives such as regulatory sandboxes in Singapore and Hong Kong provide institutions with the confidence to deploy these solutions.
Real-World Examples
- •J.P. Morgan is actively testing tokenized deposits on the Base network.
- •Visa is leveraging Zero-Knowledge (ZK) proofs to enhance privacy within its tokenized platforms.
- •Société Générale has successfully issued regulated stablecoins on the Ethereum blockchain.
These tangible examples demonstrate that ETH L2s are already instrumental in driving live institutional applications and fostering innovation within the financial sector.
🚨 JUST IN: JPMorgan launches deposit token JPM Coin for institutional clients on Base, enabling instant 24/7 settlements, per Bloomberg. pic.twitter.com/0KT5osZxtV
— Cointelegraph (@Cointelegraph) November 12, 2025
Choosing the Right L2
Institutions have a spectrum of choices when it comes to L2 solutions, ranging from participating in public L2s like Optimism or Arbitrum to developing their own private networks. The decision between Optimistic rollups and ZK rollups often depends on specific needs, with Optimistic rollups being suitable for simpler use cases and ZK rollups offering enhanced privacy and faster finality for more complex applications. Key factors influencing this choice include cost-effectiveness, regulatory compliance, available support, and long-term flexibility. It is anticipated that many institutions will adopt a hybrid approach, utilizing both the Ethereum mainnet and various L2 solutions.
The Growing ETH L2 Ecosystem
The ETH L2 ecosystem is experiencing continuous growth, with networks such as Base, Optimism, Arbitrum, Starknet, ZKsync, and Linea rapidly expanding their capabilities. Many of these networks are now facilitating the development of custom AppChains and Layer 3 (L3) solutions. Tools like L2BEAT are invaluable resources for institutions seeking to analyze network activity, assess security, and track adoption trends.
Conclusion
The Etherealize report underscores the transformative impact of ETH L2s on the global financial system. A significant number of established institutions have already engaged in building and experimenting with Ethereum and its associated Layer 2 solutions, with some operating production-scale systems.