Coinbase: Tier 2 solutions could hurt Ethereum’s earnings in the short term

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Coinbase, after examining layer 2 scaling solutions for the Ethereum network, reported on the risks they carry in the short term and the benefits in the long term.

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According to a Coinbase report, Polygon (MATIC) and other scaling solutions pose a threat to the price of Ether (ETH). Analysts have said that second layer (L2) networks could hurt Ethereum’s revenue.

“The development of L2 in the future may lead to a decrease in Ethereum revenues, since most decentralized applications are deployed on them. Their growth can ensure the operation of the entire Ethereum ecosystem. This suggests that L2 may eventually deprive Ethereum of all income, ”experts expressed concern.

Coinbase reports that over the past year, scaling solutions such as Polygon (MATIC), Optimism (OP), and Arbitrum have generated less than 1% of Ethereum’s revenue. Over the past 12 months, Ethereum has earned $9.971 billion compared to the combined revenue of Arbitrum, Polygon and Optimism of about $78 million.”

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According to exchange analysts, once Ethereum moves to Proof-of-Stake (PoS), scaling solutions could lead to lower fees, which could negatively impact the price of ETH:

“If most of the user activity moves to L2 and these networks need their own tokens, this could reduce the yield for validators who will earn less on net transaction fees. If this prevents the placement of orders on the platform, then the size of the liquid circulating supply of ETH will increase, which could hurt its price.”

On the other hand, Coinbase experts believe that scaling solutions can benefit Ethereum in the long run. If L2 makes transactions cheaper, faster, and easier, then the initial revenue impact could be mitigated by increased network activity.

“The impact of L2 on Ethereum earnings may be a short-term phenomenon. In the long term, earnings depend on more activity in the overall crypto ecosystem, as well as whether Ethereum becomes the dominant universal blockchain,” analysts said.

Recall that on the eve of the Ethereum merger, the Coinbase exchange focused all its attention on staking.

Source: Bits

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