Ethereum Layer 2 Networks' TVL Surpasses $13B Despite Market Challenges
Summary:
The total value locked (TVL) in Ethereum Layer 2 networks hit a record-breaking $13 billion on November 10, according to data from L2Beat. The surge comes despite challenges, with market experts predicting this upward trend will continue. Metis CEO, Elena Sinelnikova, attributes the growth to high transaction costs during the bull market and efficient marketing strategies. However, issues like delayed withdrawal periods with optimistic rollups and crash-prone early-stage ZK proof networks remain. Despite these, the number of layer 2s is increasing, with crypto exchange OKX recently announcing the creation of a Layer 2 network.
The total value locked (TVL) in Ethereum Layer 2 networks surpassed the $13 billion threshold on November 10, marking a historic moment, as revealed by blockchain analysis platform L2Beat. The accelerated interest in layer 2s is predicted to persist, though hurdles related to user experience and security have to be conquered. According to L2Beat, 32 networks including Arbitrum One, Optimism, Base, Polygon zkEVM, Metis, among others are classified as Ethereum layer 2s. Until June 15, the combined value of these networks did not exceed $10 billion, with the TVL witnessing a decline since April's high of $11.8 billion. However, since June 15, layer 2 TVL began to rise, and it hit a new peak of nearly $12 billion at the end of October. Subsequently, it surpassed $13 billion on November 10 and is currently close to $13.5 billion.
The soaring TVL becomes more remarkable when seen against the backdrop of the 2021 bull market, where, despite the overall larger crypto investment, the layer 2s had less than $6 billion TVL. Fascinatingly, while the overall market cap of cryptocurrencies has shrunk to $1.4 trillion today, the TVL of layer 2s has exceeded all previous records.
The CEO of Metis, Elena Sinelnikova offered an explanation for layer 2s' growth despite the bearish market, stating that high transaction costs on Ethereum during the bull market made users seek out alternative networks as the demand resurged. She underscored that efficient marketing strategies have also contributed to increased user activity and consequent high yields on layer 2 networks. However, she cautioned that user-experience remains a major challenge, with optimistic rollups causing user frustration due to week-long withdrawal periods and early-stage ZK proof networks being prone to crashes. Despite these concerns, she revealed that her team is creating a 'hybrid' network that will balance instant withdrawal and 7-day optimistic processes.
Echoing Sinelnikova's concerns, Kelsey McGuire, a top executive at layer 1 network Shardeum, commented on the centralization issue regarding layer 2s, which goes against the basic decentralization principle of blockchain. Despite these challenges, she predicts an improvement in layer 1 due to competition from layer 2s, which will eventually boost the base layers' throughput.
The soaring TVL coincides with a rise in the number of layer 2s, with OKX announcing its creation of a layer 2 network on November 14, amidst speculations that Kraken might do the same.
Published At
11/15/2023 4:57:57 PM
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