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. In accordance with business specialists, this pattern of larger curiosity in layer 2s is prone to proceed, though some challenges remain, particularly within the realms of person expertise and safety.
In accordance with L2Beat, 32 totally different networks qualify as an Ethereum layer 2, together with Arbitrum One, Optimism, Base, Polygon zkEVM, Metis and others. Previous 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 development turned constructive. And by Oct. 31, these networks had reached a brand new excessive of almost $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 just about $13.5 billion on the time of publication.
This rise in TVL is much more dramatic when put next with the speed that existed through the bull market of 2021, when total 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. Immediately, the whole market cap of cryptocurrencies is a extra modest $1.4 trillion, according to CoinMarketCap, but the TVL of layer 2s is larger than ever.
In a dialog with Cointelegraph, Metis CEO Elena Sinelnikova proposed a concept for why layer 2s are rising regardless of the persevering with bear market. In accordance with her, Ethereum’s excessive fuel charges through the bull market left an indelible affect on customers, resulting in a need for options when demand began to return again, as she said:
“On the time of [the] bull market, Ethereum at peak instances was very nonscaleable, which meant that transactions had been gradual and really costly due to the bull market. It could be a whole lot of {dollars} simply in transaction charges for one transaction, so subsequently it was not sustainable.”
In accordance with 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’re deploying capital to draw new customers and to draw new enterprise into DeFI [decentralized finance],” she said. “DeFi folks from all ecosystems, they at all times go the place there are huge yields, […] and that is simply naturally occurring, and is […] the character of enterprise.”
Associated: Aave v3 launches on Ethereum layer-2 network Metis
Nevertheless, 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. Alternatively, 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 typically than older networks. The Metis CEO claimed that her group is engaged on a “hybrid” layer 2 community that may mix the most effective of each worlds, giving customers the choice to withdraw utilizing both an prompt ZK prover or a seven-day optimistic course of.
Kelsey McGuire, chief development officer for layer 1 community Shardeum, instructed Cointelegraph that layer 2s face one other severe problem that’s typically ignored: centralization. “Whereas layer-2 options have gained reputation for his or her scalability enhancements over the past yr, they typically introduce a trade-off in decentralization,” she said. She continued:
“On the execution layer, the place transactions are processed, centralized sequencer nodes are employed, elevating considerations about potential censorship or authorities interference. This centralized facet in layer-2 implementations challenges the core rules of decentralization and trustlessness which have underpinned the blockchain house.”
McGuire expects competitors from layer 2s to spur enhancements to layer 1s, finally resulting in greater throughput for the foundational layers themselves. As she said, “There could also be fewer and fewer new L1s, and we’ll begin to see a refocus on true scalability (as in excessive TPS paired with low fuel charges) on the foundational layer versus relying solely on L2s to offer scalability.”
Along with their TVL growing, the variety of layer 2s additionally continues to rise. On Nov. 14, crypto alternate OKX (*2*), and there have been rumors that Kraken is building one as well.
