Home>BLOCKCHAIN>Layer 2 networks hit $13 billion TVL however challenges nonetheless stay

Layer 2 networks hit $13 billion TVL however challenges nonetheless stay


Ethereum Layer 2 networks reached a brand new milestone on November 10, reaching $13 billion of complete worth locked (TVL) inside their contracts, in keeping with knowledge from blockchain analytics platform L2Beat. In response to business consultants, this development of larger curiosity in layer 2s is more likely to proceed, though some challenges stay, particularly within the realms of person expertise and safety.

Ethereum layer 2 TVL. Supply: L2Beat.

In response to L2Beat, there are 32 completely different networks that qualify as Ethereum layer 2s, 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.

However starting on June 15, layer 2 TVL progress turned constructive. And by October 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 November 10 and persevering with to just about $13.5 billion on the time of publication.

This rise in TVL is much more dramatic compared with the speed that existed throughout the bull market of 2021, when general crypto funding was a lot bigger than it’s right now. On November 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. At the moment, 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 principle for why layer 2s are rising regardless of the persevering with bear market. In response to her, Ethereum’s excessive gasoline charges throughout the bull market left an indelible affect on customers, resulting in a want for options when demand began to return again, as she acknowledged:

“On the time of [the] bull market, Ethereum at peak instances was very non-scaleable, which meant that transactions have been gradual and really costly due to the bull market. It will be lots of of {dollars} simply in transaction charges for one transaction, so due to this fact it was not sustainable.”

In response to Sinelkova, one more reason that layer 2 networks have thrived within the bear market is due to the profitable advertising efforts of their growth groups, which has led to excessive person exercise and due to this fact, excessive yields. “They’re deploying capital to draw new customers and to draw new enterprise into DeFI [decentralized finance],” she acknowledged. “DeFi individuals from all ecosystems, they all the time go the place there are huge yields […] and that is simply naturally taking place and is […] the character of enterprise.”

Associated: Aave v3 launches on Ethereum layer-2 network Metis

Nonetheless, Sinelkova warned that layer 2s nonetheless face challenges within the realm of user-experience. Optimistic rollup networks require customers to attend 7 days for a withdrawal to be processed, which may result in frustration. Alternatively, newer zero-knowledge (ZK) proof networks can course of withdrawals immediately, however they’re nonetheless 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 can mix the most effective of each worlds, giving customers the choice to withdraw utilizing both an on the spot ZK prover or a 7-day optimistic course of.

Kelsey McGuire, chief progress officer for layer 1 community Shardeum, informed Cointelegraph that layer 2s face one other critical problem that’s usually ignored: centralization. “Whereas Layer-2 options have gained recognition for his or her scalability enhancements over the past 12 months, they usually introduce a trade-off in decentralization” she acknowledged. 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 ideas 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 larger throughput for the foundational layers themselves, as she acknowledged “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 gasoline charges) on the foundational layer versus relying solely on L2s to supply scalability.”

Along with their TVL growing, the variety of layer 2s additionally continues to rise. On November 14, crypto trade OKX announced that it is building a layer 2, and there have been rumors that Kraken is building one as well.