Ethereum layer-2 networks have reached a significant milestone, with a total value locked (TVL) of $13 billion within their contracts as of November 10th, according to data from L2Beat, a blockchain analytics platform. This marks a substantial increase in TVL compared to previous months, indicating a growing interest in layer 2 solutions. Industry experts believe that this trend is likely to continue, although there are challenges that still need to be addressed, particularly in the areas of user experience and security.
L2Beat reports that there are currently 32 different networks that qualify as Ethereum layer 2 solutions, including well-known platforms such as Arbitrum One, Optimism, Base, Polygon zkEVM, and Metis, among others. Prior to June 15th, the combined TVL of these networks was less than $10 billion, and it had been declining since reaching a high of $11.8 billion in April. However, on June 15th, the growth in layer-2 TVL turned positive, and by October 31st, these networks had reached a new high of nearly $12 billion combined TVL. This growth continued, surpassing the $13 billion TVL mark on November 10th, and approaching $13.5 billion at the time of publication.
The increase in TVL is particularly notable when compared to the rate of growth during the bull market of 2021. Despite the overall market cap of cryptocurrencies being significantly larger in 2021, layer 2s had less than $6 billion locked within their contracts when the market cap reached an all-time high of $2.82 trillion. However, with the current more modest total market cap of cryptocurrencies at $1.4 trillion, the TVL of layer 2s has surpassed $13 billion, indicating a dramatic surge in interest and investment in layer 2 solutions.
According to Elena Sinelnikova, the decentralization coordinator at Metis, Ethereum’s high gas fees during the bull market left a lasting impact on users, leading to a desire for alternatives when demand started to rebound. She explained that during the bull market, Ethereum was non-scalable, resulting in slow and very expensive transactions. This unsustainable situation drove users to seek alternatives, leading to the growing interest in layer 2 solutions.
Sinelnikova also attributed the success of layer 2 networks in the bear market to the successful marketing efforts by their development teams, which attracted high user activity and yields. However, she cautioned that challenges in user experience still exist, particularly with delays in withdrawal processing in some networks and the instability of newer zero-knowledge (ZK) proof networks.
Kelsey McGuire, the chief growth officer for layer 1 network Shardeum, raised concerns about the centralization of layer 2 solutions, emphasizing their potential trade-offs in decentralization and trustlessness. She believes that competition from layer 2 solutions will ultimately drive improvements to layer 1s, leading to higher throughput for the foundational layers themselves.
In addition to the increasing TVL, the number of layer 2 solutions continues to grow, with announcements from crypto exchanges OKX and rumors surrounding Kraken’s development of their own layer 2 solutions.
The rise of layer-2 TVL and the growing ecosystem of layer 2 solutions demonstrate a shift in the landscape of Ethereum and decentralized finance (DeFi), with users and developers seeking scalable and efficient alternatives to the challenges posed by Ethereum’s current infrastructure. As layer 2 solutions continue to evolve and address existing challenges, they are expected to play a critical role in shaping the future of blockchain technology and decentralized applications.