Layer-2 technology is a powerful extension of blockchain technology stacks. It addresses scalability concerns and high fees. However, the TVL across L2 networks today remains relatively low, with some caveats to consider.
Layer-2 Networks Need More Total Value Locked
Layer-2 networks can play a crucial role in scaling blockchain technology. That applies especially to Ethereum, a network hindered by technical constraints and high fees in the past. However, things have improved in the past year or so, allowing Ethereum to remain the go-to network for DeFi, NFTs, GameFi, etc. That doesn’t mean L2 networks can’t be successful, but everything needs to be put into the correct context.
At this time, Arbitrum One is the leading Layer-2 network by Total Value Locked. It represents $2.22 billion, or a market share of over 52%. That is rather telling and shows how reliant the L2 ecosystem is on this particular solution. It has universal application properties and Optimistic Rollup technology to forge ahead. Even so, $2.22 billion is far less than what most enthusiasts had hoped to see.
The second contender is Optimism, with $1.19 billion in TVL and a 28.25% market share. It is a bit problematic when two projects represent over 80% of the industry vertical. That shows other networks either fall woefully short or struggle to captivate an audience. Of course, ongoing bearish market conditions won’t help matters, but pooling more resources into just two networks isn’t necessarily ideal.
The Layer-2 top three by TVL is complete with dYdX. Although it is an exchange protocol, first and foremost, it has a respectable $401 million in Total Value Locked. That is enough to give it a 9.45% market share. Quick-witted readers will realize that three projects dominate 90% of the L2 space. If competition is to emerge, something must change soon.
Other L2s Struggle For Value
There is no shortage of Layer-2 networks trying their hand at scaling blockchain. Most projects use ZK Rollups or Validium to achieve that goal. Notable contenders include Loopring, Metis Andromeda, Immutable X, zkSync, ZKSpace, etc. Unfortunately, these networks reach less than $100m in TVL today. It is still being determined why that is, though, as they all provide crucial benefits.
In addition, many of the smaller networks have their native asset representing a large share of TVL. For Metis Andromedia, that token represents over 50% of its TVL, as is the case with Loopring, Immutable X, and Boba Network. That isn’t necessarily an issue, but it is something to consider.
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