Ethereum Layer 2 Network arrive On November 10, their total contract value locked (TVL) reached $13 billion, a new milestone, according to blockchain analytics platform L2Beat. Industry experts say the trend of greater interest in Layer 2 is likely to continue, although some challenges remain, particularly in the areas of user experience and security.
According to L2Beat, there are 32 different networks eligible for Ethereum Layer 2, including Arbitrum One, Optimism, Base, Polygon zkEVM, Metis, and others. Before June 15, there was less than $10 billion of cryptocurrency locked in contracts across all these networks combined, and their total TVL has been declining since reaching a high of $11.8 billion in April.
But starting from June 15, the second-tier TVL growth turned positive. As of October 31, the total TVL of these networks has reached a new high of nearly $12 billion. Since then, investment in Layer 2 apps has continued to climb, surpassing the $13 billion TVL mark on November 10 and continuing to approach $13.5 billion at the time of publication.
TVL’s growth is more significant compared to the ratio during the 2021 bull market, when overall cryptocurrency investment was much larger than it is now. On November 12, 2021, the market capitalization of all cryptocurrencies reached an all-time high of $2.82 trillion, while less than $6 billion was locked in Layer 2 contracts. Today, the total market capitalization of cryptocurrencies is a modest $1.4 trillion. according to For Coinmarketcap, the TVL for Tier 2 is greater than ever.
In a conversation with Cointelegraph, Metis CEO Elena Sinelnikova offered a theory as to why Layer 2 is still growing despite the ongoing bear market. According to her, Ethereum’s high gas fees during the bull run left an indelible impact on users, leading to a desire for alternatives when demand started to pick up, as she said:
“During the bull market, Ethereum was very unscalable at its peak, which meant that transactions were very slow and very expensive due to the bull market. Transaction fees for just one transaction were hundreds of dollars, so it was unsustainable.”
Sinelkova said another reason why Layer 2 networks thrived in the bear market was the successful marketing efforts of their development teams, which resulted in high user activity and therefore high revenue. “They are deploying capital to attract new users and attract new businesses into DeFI (decentralized finance),” she said. “DeFi people from all ecosystems, they always go where there are high yields (…), it happens naturally and is (…) the nature of business.”
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However, Sinelkova warned that Layer 2 still faces challenges in the area of user experience. The Optimistic Aggregation Network requires users to wait 7 days for withdrawals to be processed, which can lead to user frustration. On the other hand, newer zero-knowledge (ZK) proof networks can process withdrawals immediately, but they are still in the early stages of development and are more prone to crashes than older networks. The Metis CEO claims that her team is developing a “hybrid” layer 2 network that will combine the best of both worlds, giving users the option to opt out using instant ZK provers or a seven-day optimistic process.
Kelsey McGuire, chief growth officer of Layer 1 network Shardeum, told Cointelegraph that Layer 2 faces another serious challenge that is often overlooked: centralization. “While Layer-2 solutions have gained popularity over the past year for their increased scalability, they often come with a trade-off in decentralization,” she said. She continued:
“At the execution layer that processes transactions, centralized orderer nodes are employed, raising concerns about potential censorship or government intervention. This centralized aspect of layer 2 implementation challenges the decentralization and decentralization that underpins the blockchain space. The core principle of trustlessness.”
McGuire expects competition from Layer 2 to spur improvements in Layer 1, ultimately leading to higher throughput in the base layer itself, as she said “there will likely be fewer and fewer new L1s, and we’ll start to see people re- Focus on true scalability (like high TPS of the base layer combined with low gas fees) rather than relying solely on L2 to provide scalability.”
In addition to TVL increases, the number of Tier 2s continues to increase. On November 14, cryptocurrency exchange OKX announced that it was building Layer 2, and there were rumors that Kraken was also building Layer 2.
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