The second largest cryptocurrency by market cap continues to dominate the smart contract space. The Ethereum blockchain is home to nearly 1,000 decentralized financial applications (DeFi) with a combined locked liquidity of over $50 billion, more than half of the entire DeFi market, according to data Defillama on August 15, writes RBC Crypto.
However, due to unresolved issues with Ethereum scaling and high network fees during periods of active blockchain use, since 2021, developers have begun to use the concept of rollups (from the English rollups – “to roll up”) or so-called second-level (L2) solutions as one of the main technologies for development.
Dan Morehead’s oldest US crypto fund Pantera Capital called L2 and rollups “an immediate and long-term solution to the growing congestion of the Ethereum network” in late 2021.
Hundreds of networks
L2 solutions have become so popular that at least 71 such networks have been created as of 2021, and most of them have their own token. The total locked liquidity in Ethereum-based L2 is over $37 billion. And there are over 80 L2 networks in development, data L2BEAT service.
Most of these networks have their own token, the total capitalization of which exceeds $17 billion, according to data Coingecko. And the growth potential of this entire L2 market is estimated at $1 trillion by 2030, according to VanEck.
Given these data points, the market may not be able to absorb that many protocols in the end. Analysts worry that the L2 sector is too far away from absorbing even a fraction of that supply without massive price drops. While there is reason to believe that some L2 tokens will be in demand, the ways in which value will be created for them is harder to predict.
Activity decline
Despite the popularity of second-layer blockchain networks, the number of active addresses using these networks has declined for the fourth week in a row. The figure has fallen 37% since mid-July, to 5 million active addresses, suggesting a decline in user interest, according to Growthepie service.
During the same period, L2 networks’ income, generated by users’ network commissions, fell by almost half. Total daily income fell to approximately $150,000 for the largest L2 networks: Arbitrum, Scroll, zkSync, Optimism, Base, Zora, etc. information intoTheBlock information panel.
Vaneck analysts believe that in such conditions we should expect fierce competition among L2 solutions, the main advantage of which will be not so much fundamental reasons, but the network effect that forms around their native token. And also indicate on the possibility of thousands of such L2 networks appearing in the future and the predominance of the speculative component in launching networks over their real usefulness.
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Source: Cryptocurrency
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