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Ethereum Layer-2 networks dominate Q3 transactions

TL;DR

  • A Messari report has shown that Ethereum layer-2 networks dominated transactions on the network in Q3.
  • Layer-2 solutions and their potential in the crypto market.

Ethereum’s Layer-2 networks took center stage in the third quarter, accounting for 61% of all transactions, according to the latest State of Ethereum report by Messari. The surge in Layer-2 activity was attributed to the explosive launch of Base, a platform that briefly surpassed Ethereum’s mainnet in transaction volume. Additionally, the unexpected popularity of the Friend.tech social token platform played a significant role in this growth. Kunal Goel, senior research analyst for Messari, expressed his surprise at the impact of this combination.

Ethereum layer-2 networks contributed 61% of Q3 transactions

Kunal Goel mentioned that the most significant aspect was the quick growth the Base witnessed. He also commended the impact that one app can have on a blockchain. He emphasized that new blockchain networks often face a “cold start problem,” but Base benefited from the support of Friend.tech, which helped onboard numerous users and funds. Goel highlighted the symbiotic relationship between users and developers, noting that users require quality apps, while developers need a user base to launch their applications.

Friend.tech’s choice to launch on Base was seen as a significant boost for the platform. However, Goel remained cautious, citing the prevailing bear market and low overall interest and enthusiasm in the crypto space. Base, which was incubated by Coinbase, has experienced remarkable growth since its launch in early August. According to data from a Dune dashboard by 21.co, Base’s total value locked (TVL) reached $448 million, solidifying its position as one of the top four Layer-2 solutions, trailing behind Arbitrum, Optimism, and zkSync Era.

Arbitrum continued to lead in terms of usage, with an average of 600,000 daily transactions. However, Base and Optimism made significant inroads into Arbitrum’s dominance, causing a 36% drop in transactions on the Arbitrum network during the third quarter. When it came to TVL, Arbitrum maintained a substantial lead, with $4.22 billion locked, nearly three times that of Optimism’s $1.27 billion. Nevertheless, market capitalizations have been shifting, with Arbitrum holding a $30 million advantage, currently valued at $1.067 billion according to Coingecko.

Layer-2 solutions and their potential in the crypto market

Goel explained that the rise of Layer-2 solutions surpassing Ethereum’s mainnet in transaction throughput was not surprising. He stated that the long-term perspective had always been that Layer-2 transactions would eventually surpass those on Ethereum’s mainnet. This trend became evident during the bull market of 2020-21 when it became clear that Ethereum’s mainnet alone couldn’t accommodate the growing demand. Eliezer Ndinga, head of research for 21.co, concurred with this view, stating that the prediction of Layer-2 dominance was aligned with the limitations of blockchain scalability.

He drew a parallel to the development of the internet, comparing Layer-2 scaling solutions to how bandwidth pushed the boundaries of what was possible during the dial-up era. Ndinga expressed a bullish outlook on Layer-2 solutions, describing them as “a force to be reckoned with,” especially as reputable financial institutions start adopting the technology. The increased activity on Layer-2 networks has implications for Ethereum’s security and data availability services, raising demand for these services as Layer-2 market capitalization grows.

Goel also pointed out a crucial aspect to monitor: the cost-effectiveness of Layer-2 solutions following the Dencun upgrade. As Layer-2 solutions become more cost-effective, they are likely to attract even more activity. In Goel’s long-term view, decentralized exchange (DEX) trades should transition to Layer-2 solutions, particularly as lower transaction fees become more appealing for high-velocity transactions. Despite a cautious outlook due to the bear market, Layer-2 solutions are positioned as a significant force in the crypto space, with their market capitalization and adoption expected to continue growing.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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Owotunse Adebayo

Adebayo loves to keep tab of exciting projects in the blockchain space. He is a seasoned writer who has written tons of articles about cryptocurrencies and blockchain.

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