Key Points
- Ethereum Layer 2 platforms’ total value locked (TVL) has seen a 205% increase, reaching a record high of $51 billion.
- Arbitrum and Base are the two major contributors to this growth, with TVLs of $18.3 billion and $11.4 billion respectively.
Despite facing criticism, the Ethereum ecosystem has shown impressive performance. This success is largely due to the Layer 2 platforms, which have seen their cumulative total value locked (TVL) grow by a staggering 205% this year, reaching a record high of $51 billion. This growth indicates a rising investor interest in Ethereum-native assets.
In November 2023, the Ethereum Layer-2 TVL was just $16.6 billion. It has since surged by an impressive 205%, crossing the $51 billion mark according to the current data from L2BEATS.
Role of Ethereum Layer 2 Solutions
Ethereum Layer 2 solutions have been instrumental in improving the network’s scalability. They achieve this by offloading transactions onto secondary chains, which lessens the load on the Ethereum mainnet and reduces the chance of network congestion. This also results in shorter wait times and lower transaction costs.
However, there are concerns within the industry that Layer 2 solutions could potentially be “cannibalistic.” This refers to the possibility that they could decrease revenue for the Ethereum mainnet and limit Ether’s price growth.
Major Contributors: Arbitrum and Base
The two primary contributors to the Ethereum Layer 2 TVL exceeding $51 billion are Arbitrum and Base. Arbitrum, the leading Layer 2, alone holds over $18.3 billion in TVL, accounting for a significant 35% of the total TVL.
The Coinbase L2 network Base is the second-largest network, with a total of $11.4 billion in TVL. This represents 22% of the cumulative total L2 TVL. Arbitrum’s TVL rose by over 12%, while Base saw an 11.4% increase in the week leading up to November 28.
On November 26, Base recorded a record 106 transactions per second (TPS) as its TVL surpassed the $10 billion mark for the first time. Furthermore, Base recently exceeded 1 billion total transactions, largely driven by the ongoing memecoin frenzy during this bull cycle.
Impact of Dencun Upgrade on L2 Fee Stabilization
Following the Ethereum Merge event in 2022, when the Ethereum blockchain transitioned into a PoS network, it underwent a significant upgrade known as Dencun in March 2024.
Nick Dodson, co-founder and CEO of Fuel Labs, noted that this upgrade played a crucial role in stabilizing fees across Layer 2 networks. He stated, “On the point of EIP-4844, a lot of people talk about the fee reduction, but it’s more about fee stabilization. It’s actually more about expanding capacity and scale and not so much lowering fees.”
Several Ethereum Layer 2 networks, including Starknet, Optimism, Base, and Zora OP Mainnet, experienced a 99% reduction in median transaction fees following the upgrade’s implementation.
The Ethereum price is showing strength once again, recovering over 15% from the lows of $3,000 last week. The Ethereum futures open interest on CME exchange has also reached a new all-time high, indicating bullish sentiment among investors. The next major milestone for ETH would be $4,000 before it sets the path for a new all-time high.
