Layer 2 networks struck $13B TVL, however difficulties still stay
Ethereum layer-2 networks reached a brand-new turning point on Nov. 10, reaching $13 billion of overall worth locked (TVL) within their agreements, according to information from blockchain analytics platform L2Beat. According to market professionals, this pattern of higher interest in layer twos is most likely to continue, although some difficulties stay, particularly in the worlds of user experience and security.
According to L2Beat, 32 various networks certify as an Ethereum layer 2, consisting of Arbitrum One, Optimism, Base, Polygon zkEVM, Metis and others. Prior to June 15, all of these networks integrated had less than $10 billion of cryptocurrency locked within their agreements, and their combined TVL had actually been decreasing because April’s high of $11.8 billion.
However starting on June 15, layer-2 TVL development turned favorable. And by Oct. 31, these networks had actually reached a brand-new high of almost $12 billion integrated TVL. From there, financial investment in layer 2 apps continued to climb up, passing the $13 billion TVL mark on Nov. 10 and continuing to almost $13.5 billion at the time of publication.
This increase in TVL is a lot more significant when compared to the rate that existed throughout the booming market of 2021, when total crypto financial investment was much bigger than it is today. On Nov. 12, 2021, when the marketplace cap of all cryptocurrencies reached an all-time high of $2.82 trillion, layer twos had less than $6 billion locked within their agreements. Today, the overall market cap of cryptocurrencies is a more modest $1.4 trillion, according to CoinMarketCap, yet the TVL of layer twos is higher than ever.
In a discussion with Cointelegraph, Metis decentralization planner Elena Sinelnikova proposed a theory for why layer twos are growing in spite of the continuing bearish market. According to her, Ethereum’s high gas costs throughout the booming market left an enduring effect on users, resulting in a desire for options when need began to come back, as she mentioned:
” At the time of [the] booming market, Ethereum at peak times was really nonscaleable, which indicated that deals were sluggish and really pricey due to the fact that of the booming market. It would be numerous dollars simply in deal costs for one deal, so for that reason it was not sustainable.”
According to Sinelnikova, another factor that layer 2 networks have actually prospered in the bearish market is due to the fact that of the effective marketing efforts of their advancement groups, which has actually resulted in high user activity and, for that reason, high yields. “They are releasing capital to bring in brand-new users and to bring in brand-new service into DeFI [decentralized finance],” she mentioned. “DeFi individuals from all environments, they constantly go where there are huge yields, […] and this is simply naturally occurring, and is […] the nature of service.”
Related: Aave v3 launches on Ethereum layer-2 network Metis
Nevertheless, Sinelnikova alerted that layer twos still deal with difficulties in the world of user experience. Positive rollup networks need users to wait 7 days for a withdrawal to be processed, which can result in disappointment. On the other hand, more recent zero-knowledge (ZK) evidence networks can process withdrawals immediately, however they are still in an early phase of advancement and tend to crash more frequently than older networks. The Metis CEO declared that her group is dealing with a “hybrid” layer 2 network that will integrate the very best of both worlds, providing users the alternative to withdraw utilizing either an instantaneous ZK prover or a seven-day positive procedure.
Kelsey McGuire, primary development officer for layer 1 network Shardeum, informed Cointelegraph that layer twos deal with another major difficulty that is typically ignored: centralization. “While layer-2 options have actually acquired appeal for their scalability improvements over the in 2015, they typically present a compromise in decentralization,” she mentioned. She continued:
” At the execution layer, where deals are processed, centralized sequencer nodes are utilized, raising issues about prospective censorship or federal government disturbance. This central element in layer-2 applications challenges the core concepts of decentralization and trustlessness that have actually underpinned the blockchain area.”
McGuire anticipates competitors from layer twos to stimulate enhancements to layer ones, eventually resulting in greater throughput for the fundamental layers themselves. As she mentioned, “There might be less and less brand-new L1s, and we’ll begin to see a refocus on real scalability (as in high TPS coupled with low gas costs) at the fundamental layer rather than relying exclusively on L2s to supply scalability.”
In addition to their TVL increasing, the variety of layer twos likewise continues to increase. On Nov. 14, crypto exchange OKX revealed that it is constructing a layer 2, and there have actually been reports that Kraken is constructing one also.