Many Layer 2 solutions support standard ERC-20 tokens from Ethereum, as well as their own native tokens. However, standard ERC-20 tokens inherit the same pseudo-anonymity properties as on the Ethereum main chain, where transactions are public.

For enhanced privacy, there are specialized privacy tokens and protocols being built on Layer 2:

Tornado Cash: A crypto mixing service initially on Ethereum that has been deployed on some Layer 2 solutions like Arbitrum to provide privacy for token transfers.

Rails: A privacy-focused Layer 2 scaling solution being built using ZK-Rollups that aims to provide private token transfers and smart contract execution.

Aztec Protocol: A privacy protocol for anonymous digital asset creation on Ethereum and Layer 2 solutions like Arbitrum using zero-knowledge proofs.