Layer-2 adoption on Ethereum could be the Crypto Market’s turning point
A cryptic Reddit user has predicted that layer-2 adoption on blockchain could be the next decisive development, particularly on Ethereum.
The post explains that “We’re at a turning point” where the Cryptocurrency sector is shifting from layer-1 blockchain towards layer-2, which are “right out of the gate, more secure and decentralized than all layer-1s and are built to use sound money on a credibly neutral platform”.
“Layer-2 adoption is happening now, even if it is slow and in bursts. Behind the scenes, layer-2s are improving reliability, decreasing fees, and increasing accessibility. Layer-2s are still building and improving, and that’s fantastic.”
Layer 2 refers to a secondary mechanism built on top of an existing blockchain protocol. This mechanism solves transaction speed and scaling problems that are faced by major L1 cryptocurrency networks. For example, Bitcoin and Ethereum are still not capable of processing thousands of transactions per second (TPS), and this is disadvantageous to their growth. There is a need for higher throughput before these networks can be effectively adopted and used on a wider scale.
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Other layer-1 chains, for example, Solana, boast of relatively cheap and fast transactions and are supported by users upset by high fees.
The average , (SOL) transaction costs around $0.0025, while Ether (ETH) transactions cost around $1.30. According to blockchain tracker DeFiLlama, demand for ETH block space has remained dominant, as its $73.89 billion total value locked (TVL) outweighs Solana’s $4.24 billion. Additionally, reliability issues have plagued Solana recently.
According to L2beat, currently, Arbitrum is one of the largest layer-2 on ETH with $2.65 billion in total value locked whereas the entire ETH L2 network has a TVL of $4.77 billion. These might be set to grow at a rapid pace if the right forces can draw users and capital away from layer-1s.
Other decentralized apps (DApps) are already installed on layer-2s. Decentralized exchange (DEX) SushiSwap and yield aggregator Curve are on Arbitrum. Meanwhile, crypto derivatives protocol Synthetix and DEX Uniswap are on Optimism.
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The upcoming optimism airdrop could also mark the beginning of the rapid entry of users to layer-2s. This could be due to the same network effects that attracted users to Ethereum and Ethereum Virtual Machine (EVM)-based decentralized finance (DeFi) protocols over the past two years.
Optimism is a layer-2 with TVL of $474 million. EVM chains such as Binance exchange, Polygon (MATIC) and Fantom (FTM) are currently compatible with Ethereum token standards.
Finally, if there is layer-2 utility surge, the ETH layer-1 will have a consequent increase, which would further solidify ETH as the world’s leading smart contract and decentralized application platform.
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