What are layer two tokens?

Layer two tokens are associated with layer two solutions on blockchain networks, particularly Ethereum. These tokens can be used within the layer two ecosystems for various purposes such as governance, paying transaction fees, or incentivizing certain behaviors like liquidity provision.

Layer two solutions like Optimism and Arbitrum issue their own tokens, but they also accept ether (ETH) as a currency within their ecosystems, maintaining the link to the Ethereum network upon which they are built. This integration helps to ensure that while layer two tokens have their utility and value, they also contribute to the broader Ethereum ecosystem by handling transactions off the main chain but eventually settling on it 1.