The red market is when market prices are down; it is like a test for the strength of blockchain networks and protocols.
Ethereum L2 solutions are helpful and valuable to users. This article presents the current state of Ethereum Layer 2 solutions.
What Are Ethereum L2s?
Ethereum is a vast blockchain that can sometimes get congested and expensive. So, Ethereum L2s emerged to fix this issue. These L2s are parallel blockchains that make transactions faster and cheaper, increasing efficiency. Picture Ethereum as a motorway with heavy traffic. L2s are minor roads connected to the highway that allow cars (transactions) to flow more without congestion.
The number of Layer 2 solutions built on Ethereum grew in 2023. Data from L2Beat showed 74 L2s and 30 L3s. L3s are smaller chains constructed on existing L2s.
Amidst these records about Ethereum L2 growth, only a few are popular and valuable to users. Only a few have attracted real users and money to their protocols.
Market Cap: Circulating and Fully Diluted
Most L2s currently have a multi-billion-dollar FDV but a circulating market cap below $1B, indicating that a large portion of their tokens are still not in circulation.
The exception is @0xMantle, with 52% of its supply unlocked, making… pic.twitter.com/sg5mqolrl2
— Stacy Muur (@stacy_muur) September 12, 2024
This article focuses on the nine most popular L2s based on user activity and total value locked (TVL). The active user base and TVL represent the money stored in these chains. More engagement means more money and high TVL means high prospects and potential.
Understanding Market Cap and Token Supply
Many L2s have high “fully diluted valuations” (FDV), representing their total value if all tokens were circulating. Yet most tokens remain locked, with circulating market caps often below $1 billion. From statistics, Mantle is the only L2 with above 52% of token circulation and a market cap of more than $1 billion.
This difference between FDV and circulating supply has resulted in a letdown with recent airdrops. This is because locked tokens reduce the perceived value of rewards. Here is an example of the TVL of L2 chains:
On February 15th, 2024, the TVL of all L2 projects listed on L2BEAT combined surpassed $25 billion for the first time! 💗
With almost 40 active projects and the same number upcoming, a growing scaling factor, and many projects beginning their move to ascend in our Stages… pic.twitter.com/Sxz8OFTAMz
— L2BEAT 💗 (@l2beat) February 15, 2024
What is Total Value Locked (TVL)?
TVL is vital for evaluating L2s and measuring the funds stored in the chain through contracts, staking, or liquidity pools. While most L2s saw a summer TVL drop, some, like Scroll, Linea, and Mantle, maintained theirs with reward programs.
However, not all incentives excite users the same way. Linea’s long-running airdrop has lost appeal, while newer programs, like Scroll’s, have kept users more engaged.
Total Value Locked
On the TVL side, all chains have experienced a tough summer, except for those with ongoing incentive programs like @Scroll_ZKP, @LineaBuild, and @0xMantle.
However, Linea’s airdrop program, which has lasted for almost a year, has seen decreased interest from… pic.twitter.com/DIkgPsyYaI
— Stacy Muur (@stacy_muur) September 12, 2024
Fees and Transaction Activity
Gas fees is a payment anyone needs to cover to make a successful blockchain-related transaction. So, Ethereum L2s help reduce the cost of successful transactions. In its recent Dencun upgrade, Ethereum reduced fees on both Ethereum and L2s.
For example, Base experienced solid transaction growth fueled by memecoins. ZKSync and Linea, despite incentives, cannot increase their growth rate as Base does.
Fees and Transaction Activity
Post-Dencun, DA no longer significantly drives ETH’s economics, impacting fees on both Ethereum and L2s. Therefore, it’s crucial to examine fee dynamics alongside transaction activity. pic.twitter.com/jxlmJvZnkw
— Stacy Muur (@stacy_muur) September 12, 2024
Monthly Active Users (MAU)
The number of MAUs helps check Ethereum L2 solutions. It shows how many people use a specific chain. Among Ethereum L2s, Mantle and Base have the largest MAU, meaning they have the potential to keep users and attract more capital.
Starknet, ZKSync, and Blast are behind. Based on the comparison of MAU and FDV, Starknet is overhyped compared to Arbitrum, Optimism, and ZKSync.
Monthly Active Users
The MAU dynamics, a key indicator for assessing chain retention rates, reveal a similar trend. @0xMantle and @base are performing the best, while @StarknetFndn, @zksync, and @blast lag behind.
Comparing MAU data to FDV, it’s evident that Starknet is… pic.twitter.com/ot6mU4hlIn
— Stacy Muur (@stacy_muur) September 12, 2024
Bridge Inflow and Outflow: Where is the money going?
Bridges are channels through which money can move from one blockchain to another. You can move money via a bridge from Ethereum to L2s (inflow) and from L2s back to Ethereum (outflow).
If an L2 has more inflow than outflow, it’s a good sign that new users and capital are coming in. Among the L2s, Arbitrum, Starknet, Optimism, Base, and Mantle are doing well. However, Linea, ZKSync, and Blast show negative net flows.
Ever wondered what the top 10 L2 projects would look like without taking their associated tokens into account?
Wonder no more! 🫡 pic.twitter.com/uotW2mycql
— L2BEAT 💗 (@l2beat) June 4, 2024
Developer Activity
Developer activity is one feature used to determine the strength of a blockchain. Blast has over 300 core developers, exceeding other L2s with only 30–50 developers.
While there is no special release on what Blast is currently working on, having 300 core developers and significant code commits signifies its productivity.
Developer Activity
Lastly, developer activity is measured by the number of core developments and code commits. This data helps evaluate the team’s current productivity and detect any ongoing personnel cuts. pic.twitter.com/K5KMlcoVHZ
— Stacy Muur (@stacy_muur) September 12, 2024
Conclusion
The red market has shown us which Ethereum L2s are standing firm and which are struggling. This research is on accurate blockchain data; the numbers don’t lie. You can look into these chains to know where the money is going.
Disclaimer
The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment, and informational purposes only. Any information or strategies are thoughts and opinions relevant to the accepted levels of risk tolerance of the writer/reviewers, and their risk tolerance may be different from yours.
We are not responsible for any losses you may incur due to any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments, so please do your due diligence. This article has been sponsored by Common Wealth and Three Protocol.
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