Emin Gün Sirer Warns of Deceptive Trends in L2 Solutions
Emin Gün Sirer, the co-founder of blockchain, has raised concerns about deceptive trends in certain layer-2 (L2) solutions that pose risks to investors. In a recent post on X, Sirer highlighted the emergence of “trash” projects and outlined their common characteristics and red flags. According to Sirer, these substandard L2 projects represent a significant hazard in the crypto ecosystem, following the infamous crypto exchange heist orchestrated by former FTX founder and CEO, Sam Bankman-Fried (SBF).
“Trash” L2 Projects Flood the Market
Sirer argues that the launch procedures for L2 solutions are relatively lax, allowing bad actors to create projects with little to no value. To help investors identify these risky L2 solutions and protect their security, Sirer outlined several warning signs:
- A discrepancy between the project’s narrative and its underlying technology, indicating a misalignment between marketing claims and technical implementation.
- Projects with centralized sequencers and no fraud-proof mechanisms, contradicting the core principles of decentralization and security in the cryptocurrency realm.
- L2 solutions that conduct token sales primarily for fundraising purposes rather than having a specific, practical use on the network.
- Founders selling their personal native tokens before the project’s launch, which is considered a significant red flag.
Issue of Low-Float Tokens within L2s
Another concern raised by Sirer is the prevalence of low-float tokens within projects. These tokens can artificially inflate token values through manipulative tactics, similar to those employed by SBF. In addition to these red flags, Sirer suggests a simple test for investors to identify authentic and profitable ventures:
- Identify the main issues or “blockers” in the crypto space at any given time.
- Assess whether the L2 solution genuinely addresses these challenges, such as supporting multiple use cases on the same platform and integrating with traditional finance (TradFi).
Ethereum’s Expanding Layer 2 Ecosystem
Ethereum’s Layer 2 ecosystem has experienced significant growth over the past year and a half, with a total value locked (TVL) surpassing $27 billion. Transaction activity on Layer 2 networks has even exceeded that of the Ethereum mainnet, with these networks now routinely processing five times as many transactions. One notable L2 network is Arbitrum, which currently holds a market share of 49.17% among layer 2 networks, far surpassing its competitors.
Hot Take: Proceed with Caution in the L2 Space
As an investor in the crypto space, it is crucial to stay vigilant and exercise caution when considering investments in L2 solutions. Emin Gün Sirer’s warning about deceptive trends in certain L2 projects serves as a reminder to thoroughly evaluate projects before committing funds. By being aware of the red flags and conducting due diligence, you can mitigate risks and make informed investment decisions in the evolving world of cryptocurrencies.
Sources: Twitter, Crypto News
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