Synonyms: Off Chain
Layer 2 solutions aim to address the issue of scalability that some protocols face. For example, Visa claim they can process over 65,000 transaction per second, whereas Ethereum can process around 30 transactions per second.
Layer 2 solutions address this by providing a secondary protocol on top of an existing protocol (Layer 1), which processes transactions independently of the main protocol. One approach is for a Layer 2 protocol to process a bundle of transactions, and to report back to Layer 1 a summary of the transactions (which is the the final netted impact on Layer 1 accounts). This is called a rollup.
Examples of Layer 2 solutions are Polygon (Ethereum), Arbitrum (Ethereum), and Lightning (Bitcoin).