Ethereum layer-2 networks reached a brand new milestone on Nov. 10, reaching $13 billion of whole worth locked (TVL) inside their contracts, in line with information from blockchain analytics platform L2Beat. According to business specialists, this development of higher curiosity in layer 2s is prone to proceed, though some challenges remain, particularly within the realms of person expertise and safety.
According to L2Beat, 32 completely different networks qualify as an Ethereum layer 2, together with Arbitrum One, Optimism, Base, Polygon zkEVM, Metis and others. Prior to June 15, all of those networks mixed had lower than $10 billion of cryptocurrency locked inside their contracts, and their mixed TVL had been declining since April’s excessive of $11.8 billion.
But starting on June 15, layer-2 TVL progress turned optimistic. And by Oct. 31, these networks had reached a brand new excessive of practically $12 billion mixed TVL. From there, funding in layer 2 apps continued to climb, passing the $13 billion TVL mark on Nov. 10 and persevering with to almost $13.5 billion on the time of publication.
This rise in TVL is much more dramatic in comparison with the speed that existed in the course of the bull market of 2021, when general crypto funding was a lot bigger than it’s right now. On Nov. 12, 2021, when the market cap of all cryptocurrencies reached an all-time excessive of $2.82 trillion, layer 2s had lower than $6 billion locked inside their contracts. Today, the overall market cap of cryptocurrencies is a extra modest $1.4 trillion, according to CoinMarketCap, but the TVL of layer 2s is bigger than ever.
In a dialog with Cointelegraph, Metis decentralization coordinator Elena Sinelnikova proposed a idea for why layer 2s are rising despite the persevering with bear market. According to her, Ethereum’s excessive gasoline charges in the course of the bull market left an indelible affect on customers, resulting in a need for alternate options when demand began to come back again, as she said:
“At the time of [the] bull market, Ethereum at peak times was very nonscaleable, which meant that transactions were slow and very expensive because of the bull market. It would be hundreds of dollars just in transaction fees for one transaction, so therefore it was not sustainable.”
According to Sinelnikova, one more reason that layer 2 networks have thrived within the bear market is due to the profitable advertising and marketing efforts of their growth groups, which has led to excessive person exercise and, subsequently, excessive yields. “They are deploying capital to attract new users and to attract new business into DeFI [decentralized finance],” she said. “DeFi people from all ecosystems, they always go where there are big yields, […] and this is just naturally happening, and is […] the nature of business.”
Related: Aave v3 launches on Ethereum layer-2 network Metis
However, Sinelnikova warned that layer 2s still face challenges within the realm of person expertise. Optimistic rollup networks require customers to attend seven days for a withdrawal to be processed, which might result in frustration. On the opposite hand, newer zero-knowledge (ZK) proof networks can course of withdrawals immediately, but they’re still in an early stage of growth and have a tendency to crash extra usually than older networks. The Metis CEO claimed that her crew is engaged on a “hybrid” layer 2 community that may mix the very best of each worlds, giving customers the choice to withdraw utilizing both an immediate ZK prover or a seven-day optimistic course of.
Kelsey McGuire, chief progress officer for layer 1 community Shardeum, advised Cointelegraph that layer 2s face one other severe problem that’s usually ignored: centralization. “While layer-2 solutions have gained popularity for their scalability enhancements over the last year, they often introduce a trade-off in decentralization,” she said. She continued:
“At the execution layer, where transactions are processed, centralized sequencer nodes are employed, raising concerns about potential censorship or government interference. This centralized aspect in layer-2 implementations challenges the core principles of decentralization and trustlessness that have underpinned the blockchain space.”
McGuire expects competitors from layer 2s to spur enhancements to layer 1s, in the end resulting in larger throughput for the foundational layers themselves. As she said, “There may be fewer and fewer new L1s, and we’ll start to see a refocus on true scalability (as in high TPS paired with low gas fees) at the foundational layer as opposed to relying solely on L2s to provide scalability.”
In addition to their TVL growing, the variety of layer 2s additionally continues to rise. On Nov. 14, crypto change OKX (*2*), and there have been rumors that Kraken is building one as well.
