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Thursday, December 1, 2022

Layer-2 adoption could spur the next crypto turning point

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A mysterious Redditor has made a data-driven prediction that the next main part of improvement in the blockchain area might be in layer-2 options, totally on Ethereum.

The May 22 post explains that “We’re at a turning point” the place the trade is transferring away from bridging between L1 blockchains in the direction of L2’s that are “right out of the gate, more secure and decentralized than alt-L1s and are built to use sound money on a credibly neutral platform.”

“L2 adoption is happening now, even if it is slow and in bursts. Behind the scenes, L2’s are improving reliability, decreasing fees, and increasing accessibility. L2’s are still building and improving, and that’s fantastic.”

An L2 scaling solution takes benefit of the safety of a L1 chain like Ethereum (ETH) and alleviates visitors on it by ‘rolling up’ quite a lot of transactions right into a single package deal to be settled directly.

Other L1 chains like Solana (SOL), which boasts comparatively cheap and fast transactions, have garnered assist from customers turned off by excessive charges.

The common SOL transaction prices about $0.0025 whereas ETH transactions cost about $1.30 at the time of writing. Despite that wild disparity, demand for Ethereum block area has remained overwhelmingly dominant as its $73.89 billion total value locked (TVL) outweighs Solana’s $4.24 billion in response to DeFi Llama blockchain tracker. Additionally, Solana has been plagued with reliability points not too long ago. 

As of the time of writing, Arbitrum is the largest L2 on Ethereum with $2.65 billion in TVL according to L2beat. The complete Ethereum L2 ecosystem has a TVL of $4.77 billion. These numbers could also be set for an explosion if the proper forces conspire to attract customers and capital away from different L1’s.

Several main decentralized apps (Dapps) are already deployed on L2’s. Decentralized change (DEX) SushiSwap (SUSHI) and yield aggregator Curve (CRV) are on Arbitrum. Also, crypto derivatives protocol Synthetix (SNX) and DEX Uniswap (UNI) are on Optimism.

Related: MakerDAO deploys on layer-2 network StarkNet to enhance functions of DAI stablecoin

The incoming Optimism airdrop could mark the starting of a speedy inflow of customers to L2’s. This could also be on account of the identical community results that attracted customers to Ethereum and Ethereum Virtual Machine (EVM)-based decentralized finance (DeFi) protocols over the previous two years.

Optimism is an L2 with $474 million in TVL. EVM chains are ones which can be suitable with Ethereum token requirements, comparable to Binance Chain (BNB), Polygon (MATIC), and Fantom (FTM).

Ultimately, if there is a rise in L2 utility, the Ethereum L1 could have a pure enhance in use, which could additional solidify Ethereum as the world’s main good contract and decentralized utility platform.