Ethereum Layer-2 Networks Hit $13 Billion TVL Milestone
Ethereum layer-2 networks achieved a significant milestone on Nov. 10, reaching $13 billion in total value locked (TVL) within their contracts, according to data from blockchain analytics platform L2Beat. This trend of increasing interest in layer 2s is expected to continue, although there are still challenges to address, particularly in the areas of user experience and security.
Layer 2 Growth and Expansion
L2Beat reports that 32 different networks qualify as an Ethereum layer 2, including Arbitrum One, Optimism, Base, Polygon zkEVM, Metis, and others. Prior to June 15, these networks had less than $10 billion of cryptocurrency locked within their contracts combined and their TVL had been declining since April’s high of $11.8 billion.
However, beginning on June 15, layer-2 TVL growth turned positive. By Oct. 31, these networks had reached a new high of nearly $12 billion combined TVL. The investment in layer 2 apps continued to climb, surpassing the $13 billion TVL mark on Nov. 10 and nearing $13.5 billion at the time of publication.
Impact of Layer-2 Growth
The rise in TVL is particularly significant when compared with the rate during the bull market of 2021 when overall crypto investment was much larger than it is today. On Nov. 12, 2021, layer 2s had less than $6 billion locked within their contracts when the market cap of all cryptocurrencies reached an all-time high of $2.82 trillion.
Today’s total market cap of cryptocurrencies is a more modest $1.4 trillion; yet the TVL of layer 2s is greater than ever.
Reasons for Layer-2 Growth
In a conversation with Cointelegraph, Metis CEO Elena Sinelnikova suggested that Ethereum’s high gas fees during the bull market led to a desire for alternatives when demand started to come back because transactions were slow and expensive.
Sinelnikova also attributed the success of layer 2 networks during the bear market to successful marketing efforts by development teams which have led to high user activity and yields.
Challenges and Future Development
Sinelnikova acknowledged that layer 2s still face challenges in user experience and withdrawal processing times but mentioned her team’s work on a “hybrid” layer 2 network that will combine the best features of both options.
McGuire expects competition from layer 2s to spur improvements to layer 1s and lead to higher throughput for foundational layers themselves.
Hot Take
The growth and success of Ethereum layer-2 networks are driving innovation and improvements in scalability across the industry. As more networks emerge and TVL continues to increase, developers are working on addressing challenges to provide better user experiences and security while maintaining high yields.
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