L2 to the moon – Since the middle of 2020, transaction fees have been the victims of significant volatility on Ethereum. Faced with these repeated problems of congestion, many so-called second-layer solutions (layer 2) have appeared. In the space of a year, the TVL of these networks has increased by more than 15,000%.
$7.4 billion: new ATH for L2s
At the end of 2020, a new ecosystem was born on the Ethereum blockchain, that of the decentralized finance (Challenge). In practice, it offers a decentralized version of traditional financial products. Loans, savings, derivatives, nothing is left behind.
However, the performance of the Ethereum network was not able to handle the growing number of transactions. As a result, significant congestion has set in on Ethereuminevitably leading to an explosion in transaction costs (fees).
Fortunately, many developers were already finding solutions to this congestion problem. The solution adopted was to deport the transactions as well as part of their processing off the main Ethereum blockchain. Thus, several teams of developers have started or continued the development of second-layer solutions, similar to the Lightning Network that we know about Bitcoin for several years and which has just been implemented on the Kraken exchange platform.
It took until the end of 2021 for the majority of these solutions to finally be deployed on the Ethereum mainnet.
Since January 2021, the TVL (Total Value Locked) of layers 2 has increased by 15,000%. Thus, it has gone from some 48 million dollars in January 2021 to a $7.4 billion ATH last April 2.
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Arbitrum: the king of L2s
The Ethereum network has about twenty second-layer networks, all referenced by the site L2Beat.
Among these projects, seven, one of which in particular, stands out from the crowd by capturing the overwhelming majority of TVL.
Thus, in pole position, we find the network Arbitration bringing together $4 billion TVLis 56% of all cash circulating on the second layers. This first place is ensured by the deployment of many historical protocols ofEthereum. Indeed, we find there the classics SushiSwap, CurveFinance or Uniswapwhich made the reputation of the Challenge on Ethereum.
Behind him, dYdX, Optimism, Metis, loop ring, Boba and zkSync raise between $155 million and $900 million from TVL.
Solutions not without risk
Obviously, despite being touted as silver bullet solutions to Ethereum’s congestion problem, layers 2 are not without risk.
Firstly, the validation of transactions is often extremely centralized there. Indeed, several networks are based on a so-called Sequencer node whose mission is to receive and validate transactions. However, this creates a single point of failure “.
For example, the Arbitrum network went offline for several hours after its Sequencer node failed.
Moreover, all these solutions do not always republish the transactions on the mainnet of Ethereum, a solution which makes it possible to inherit part of the security of the Ethereum network.
The L2Beat site explains very well inherent risks to these second layer solutions.
At the beginning of the week, the network Boba Network has finalized a first round of financing. This fundraising of 45 million dollars allows the company to exceed the billion dollars of valuation.
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