Tutorials:Layer II

Layer II Networks. Bridges and Wrapped Tokens

Layer II networks are solutions built on top of Layer I blockchains, like Ethereum, to improve scalability and reduce transaction costs. They help handle a large number of transactions off-chain while still relying on the main blockchain for security and finality.

The Polygon Network is a popular Layer II solution for Ethereum. It offers faster transactions and significantly lower fees, making it ideal for swapping and trading tokens. By using Polygon, users can enjoy the benefits of Ethereum's ecosystem—like smart contracts and dApps—without the high gas fees typically associated with the Ethereum mainnet.

Introduction to the Polygon Bridge and Wrapped Tokens

The Polygon Bridge is a tool that enables the transfer of tokens between the Ethereum and Polygon networks. Since these two blockchains operate independently, tokens cannot be directly moved between them. Instead, the tokens are wrapped when transferred across the bridge.

If you send tokens from one network address to an address in another network you will loose them.

The only way to "move" tokens from one blockchain to another is using the Bridge technology.

Wrapped tokens are representations of assets from one blockchain on another, maintained at a 1:1 ratio.

In the case of Seasonal Tokens, they are produced through proof-of-work mining on the Ethereum network but are traded on the Polygon network due to its lower transaction fees.

To facilitate this, users send their tokens through the Polygon Bridge. The bridge locks the original tokens on Ethereum and issues wrapped equivalents on Polygon, ensuring that the total supply remains consistent across both networks.

This mechanism allows Seasonal Tokens to be mined on Ethereum and traded efficiently on Polygon.

Bridge Tokens from one Network to Another

We can "bridge" tokens from one network to another using Metamask's built in function SWAP. Or visiting directly the bridge page. For example: https://portal.polygon.technology/bridge

Suppose we want to send Winter tokens from the Ethereum to the Polygon network. In Metamask click in the "SWAP" tab to get:

We will choose Winter in Ethereum as the source, and Winter in Polygon as the destination.

This swap will in fact use the Polygon Bridge in order to "send" the tokens from one network to another.

Since the token's prices are determined by the liquidity pools in the Ethereum and Polygon networks. Their prices are not the same, and also a small fee will be charged for the swap from one network to the other.

Arbitrage

Sometimes the price difference in two networks can present an economic incentive to send tokens from one network to another. A situation called "Arbitrage".