Layer 2 networks hit $13 billion TVL but challenges still remain

Ethereum Layer 2 networks reached a new turning point on November 10, reaching $13 billion of overall value locked (TVL) within their agreements, according to information from blockchain analytics platform L2Beat. According to industry experts, this pattern of higher interest in layer twos is likely to continue, although some challenges remain, particularly in the worlds of user experience and security.Ethereum layer 2 TVL. Source: L2Beat.According to L2Beat, there are 32 various networks that certify as Ethereum layer twos, including Arbitrum One, Optimism, Base, Polygon zkEVM, Metis, and others. Prior to June 15, all of these networks integrated had less than $10 billion of cryptocurrency locked within their contracts, and their combined TVL had actually been decreasing because Aprils high of $11.8 billion.But beginning on June 15, layer 2 TVL development turned positive. And by October 31, these networks had actually reached a brand-new high of almost $12 billion combined TVL. From there, investment in layer 2 apps continued to climb, passing the $13 billion TVL mark on November 10 and continuing to nearly $13.5 billion at the time of publication.This increase in TVL is much more significant when compared to the rate that existed during the bull market of 2021, when overall crypto investment was much larger than it is today. On November 12, 2021 when the market cap of all cryptocurrencies reached an all-time high of $2.82 trillion, layer 2s had less than $6 billion locked within their contracts. Today, the total market cap of cryptocurrencies is a more modest $1.4 trillion, according to Coinmarketcap, yet the TVL of layer twos is greater than ever.In a discussion with Cointelegraph, Metis CEO Elena Sinelnikova proposed a theory for why layer twos are growing in spite of the continuing bearishness. According to her, Ethereums high gas costs during the booming market left an indelible effect on users, causing a desire for alternatives when demand began to come back, as she specified: “At the time of [the] booming market, Ethereum at peak times was really non-scaleable, which meant that transactions were really costly and sluggish since of the booming market. It would be numerous dollars simply in deal costs for one transaction, so therefore it was not sustainable.”According to Sinelkova, another factor that layer 2 networks have thrived in the bear market is because of the effective marketing efforts of their development teams, which has resulted in high user activity and therefore, high yields. “They are deploying capital to draw in new users and to draw in brand-new company into DeFI [decentralized financing],” she specified. “DeFi people from all environments, they always go where there are huge yields […] and this is just naturally happening and is […] the nature of service.”Related: Aave v3 launches on Ethereum layer-2 network MetisHowever, Sinelkova cautioned that layer twos still deal with difficulties in the world of user-experience. Positive rollup networks need users to wait 7 days for a withdrawal to be processed, which can cause disappointment. On the other hand, newer zero-knowledge (ZK) proof networks can process withdrawals immediately, but they are still in an early phase of advancement and tend to crash more often than older networks. The Metis CEO declared that her group is working on a “hybrid” layer 2 network that will combine the very best of both worlds, offering users the choice to withdraw using either an immediate ZK prover or a 7-day optimistic process.Kelsey McGuire, primary development officer for layer 1 network Shardeum, informed Cointelegraph that layer 2s face another severe difficulty that is frequently ignored: centralization. “While Layer-2 solutions have gotten popularity for their scalability improvements over the last year, they frequently present a compromise in decentralization” she mentioned. She continued:”At the execution layer, where transactions are processed, centralized sequencer nodes are utilized, raising concerns about possible censorship or federal government interference. This centralized aspect in Layer-2 executions challenges the core principles of decentralization and trustlessness that have actually underpinned the blockchain space.”McGuire anticipates competitors from layer twos to stimulate enhancements to layer 1s, ultimately leading to greater throughput for the foundational layers themselves, as she stated “there might be less and fewer brand-new L1s, and well begin to see a refocus on real scalability (as in high TPS paired with low gas charges) at the fundamental layer rather than relying entirely on L2s to offer scalability.”In addition to their TVL increasing, the number of layer twos likewise continues to increase. On November 14, crypto exchange OKX announced that it is developing a layer 2, and there have been reports that Kraken is developing one too.

According to industry experts, this trend of higher interest in layer 2s is most likely to continue, although some challenges stay, particularly in the worlds of user experience and security.Ethereum layer 2 TVL. Prior to June 15, all of these networks combined had less than $10 billion of cryptocurrency locked within their agreements, and their combined TVL had been decreasing because Aprils high of $11.8 billion.But beginning on June 15, layer 2 TVL development turned favorable. Today, the overall market cap of cryptocurrencies is a more modest $1.4 trillion, according to Coinmarketcap, yet the TVL of layer Twos is higher than ever.In a discussion with Cointelegraph, Metis CEO Elena Sinelnikova proposed a theory for why layer Twos are growing in spite of the continuing bear market. The Metis CEO claimed that her team is working on a “hybrid” layer 2 network that will integrate the finest of both worlds, offering users the choice to withdraw using either an instantaneous ZK prover or a 7-day optimistic process.Kelsey McGuire, chief growth officer for layer 1 network Shardeum, told Cointelegraph that layer 2s deal with another serious challenge that is frequently ignored: centralization.”McGuire anticipates competition from layer 2s to stimulate enhancements to layer 1sts, eventually leading to greater throughput for the foundational layers themselves, as she mentioned “there may be fewer and fewer brand-new L1s, and well begin to see a refocus on real scalability (as in high TPS matched with low gas costs) at the foundational layer as opposed to relying solely on L2s to supply scalability.