Layer 2 networks hit $13B TVL, but challenges still remain

Data from L2Beat shows that layer 2s are seeing greater adoption than ever before as users continue to desire lower gas fees.

Layer 2 networks hit $13B TVL, but challenges still remain

Ethereum's layer-2 networks achieved a significant milestone on November 10, surpassing a total value locked (TVL) of $13 billion within their contracts, as reported by blockchain analytics platform L2Beat. This development underscores a growing interest in layer-2 solutions, driven by users seeking to mitigate high gas fees associated with layer-1 blockchains. Despite the bearish market conditions, the adoption of layer-2 networks has continued to rise, presenting a viable alternative to address concerns related to scalability and cost-effectiveness, though challenges persist, particularly in user experience and security aspects.

Ethereum layer 2 TVL. Source: L2Beat

The data from L2Beat reveals that 32 different networks qualify as Ethereum layer-2 solutions, including well-known names like Arbitrum One, Optimism, Base, Polygon zkEVM, and Metis. The combined TVL of these networks had been declining from April's high of $11.8 billion until June 15 when the trend reversed, resulting in positive growth. By October 31, the networks had reached nearly $12 billion combined TVL, further increasing to over $13 billion on November 10. This surge in TVL is notable, especially when compared to the crypto market's conditions during the bullish period of 2021.

Despite the bear market, layer-2 solutions have gained traction, partly attributed to Ethereum's high gas fees during peak times of the previous bull market, leaving users seeking alternatives. Elena Sinelnikova, CEO of Metis, suggested that layer-2 networks have flourished in the bear market due to effective marketing efforts by development teams, resulting in high user activity and yields. While these networks have demonstrated growth, challenges persist in user experience, with some networks requiring extended withdrawal processing times. Sinelnikova emphasized the need for a hybrid layer-2 network that combines the strengths of existing solutions to enhance user flexibility. Additionally, concerns over centralization and potential trade-offs in decentralization have been raised, prompting a closer examination of the trade-offs introduced by layer-2 solutions in terms of network security and principles of decentralization. The competition among layer-2s is expected to drive improvements to layer-1 networks, focusing on achieving true scalability while ensuring adherence to the foundational principles of blockchain technology.