A “Layer 2” (L2) is another network built on top of a primary “Layer 1” (L1) network such as Ethereum, which does not depend on any other network. L2 networks may have their own set of validators, liquidity, and token economic systems.
Composing transactions between the L1 and L2 networks is difficult, as they are separate networks with their own sets of protocol rules. This makes cross-dApp communication between the L1 and L2 very complicated, with no solution yet for composing “atomic” transactions between L1 and L2 networks within a single transaction. (When a transaction is atomic, all parts of the transaction either settle all together, or it safely fails - it’s all or nothing.)
By losing “atomic composability,” you potentially break most DeFi use cases, or at best, make them very complicated. For example, flash loans are not possible without atomic composability, as one part of the transaction is to borrow a lot of liquidity, and another part of the transaction is to pay it back - all in one transaction. L2 networks, therefore, create silos of liquidity and fragment DeFi ecosystems.
This is why Radix is built from the ground up to scale without friction. By delivering linear scaling without breaking atomic composability as part of the fully sharded Radix Xi’an release, no L2 solutions will ever be necessary on Radix.