Ethereum faces its challengers – level 2 blasts all records

L2 to the moon – Since mid-2020, transaction fees have been the victims of significant volatility on Ethereum. Faced with these repeated congestion problems, many so-called second-level solutions (layer 2) they appeared. Within a year, the TVL of these networks increased by more than 15,000%.

$ 7.4 billion: new ATH for L2

At the end of 2020, a new ecosystem was born on the Ethereum blockchain, that of decentralized finance (Challenge). Basically, it offers a decentralized version of traditional financial products. Loans, savings, derivatives, nothing is left behind.

However, the performance of the Ethereum network was unable to handle the growing number of transactions. Consequently, significant congestion occurred on Ethereuminevitably leading to an explosion in transaction costs (commissions).

Fortunately, many developers were already finding solutions to this congestion problem. The solution adopted was to expel the transactions as well as part of their treatment from the main Ethereum blockchain. Therefore, several developer teams have initiated or continued the development of second tier solutions, similar to Lightning Network we are aware of Bitcoin for several years and has just been implemented on the Kraken exchange platform.

It took until the end of 2021 before most of these solutions were finally implemented on the main Ethereum network.

From January 2021, the TVL (Total Value Locked) of layers 2 increased by 15,000%. Therefore, it went from around $ 48 million in January 2021 to a $ 7.4 billion in ATH on April 2nd.

Evolution of L2 TVL on Ethereum
Evolution of L2 TVL on Ethereum – Source: L2Beat.

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Arbitrum: the king of L2

The Ethereum network has about twenty second-level networks, all referenced by the site L2Beat.

Among these projects, seven, of which one in particular, stands out from the crowd by capturing the vast majority of TVL.

Thus, in pole position, we find the network Referee bringing together $ 4 billion of 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 the classics there Sushi Swap, Curved finance or Swapwhich made the reputation of the DeFi on Ethereum.

Behind him, dYdX, Optimism, Metis, Ring to ring, Boba And zkSync raise between $ 155 million and $ 900 million from TVL.

The 10 best second level solutions
Top 10 second tier solutions – Source: L2Beat.

Solutions that are not without risks

Of course, despite being advertised as silver bullet solutions to the Ethereum congestion problem, layers 2 are not without risks.

In the first place, transaction validation is often extremely centralized there. In fact, several networks are based on a so-called Sequencer node whose mission is to receive and validate transactions. However, this creates a only point of failure “.

For example, the Arbitrum network went offline for several hours after its Sequencer node failed.

Furthermore, all these solutions do not always republish transactions on the Ethereum mainnet, a solution that allows you to inherit part of the security of the Ethereum network.

The L2Beat site explains it very well inherent risks to these second layer solutions.

List of risks inherent in each solution
List of risks inherent in each solution – Source: L2Beat.

At the beginning of the week, the network Boba Network has finalized a first round of funding. This $ 45 million fundraiser allows the company to exceed the $ 1 billion valuation.

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