Total Value Locked in Ethereum Layer 2 Network Nears All-Time Highs

As the price of ETH rose in April, so did the total value locked (TVL) of the Ethereum Layer 2 network, hitting $10 billion on April 14 — its highest level ever. TVL then fell as cryptocurrency prices cooled, but remained around $9.29 billion, more than double what it was at the start of the year. data From the L2Beat Layer 2 Analysis page.

TVL represents the total value of cryptocurrencies held in decentralized finance (DeFi) protocols or DeFi protocols in general. The increase in TVL reflects the growing interest in scaling systems.

L2Beat data documented around 5 million ETH worth more than $10 billion locked on the Ethereum blockchain in mid-April when the price of the altcoin rose above $2,100. With ETH falling below $1,900, TVL is down 10% over the past 5 days to current levels. On Jan. 1, ETH was below $1,200, with a TVL of just $4.1 billion.


The total value locked (TVL) of the Ethereum layer 2 network hovered around $9.29 billion on Monday | Source: L2Beat

Messari research analyst Stephanie Dunbar said in an email that the TVL of layer 2 networks has increased recently as users tire of ethereum’s high fees during periods of peak network demand and opt for cheaper platforms. . Many of them have flourished in recent months.

ruling arbitration

According to L2Beat, Arbitrum One dominates the Layer 2 scaling space with over 66% market share. Optimism ensued, with a market share of more than 20%. Both Arbitrum and Optimism are Optimistic rollups aimed at reducing transaction costs.

This year, Arbitrium, the fourth-largest blockchain by TVL, has surpassed Ethereum in terms of daily transaction volume, with an average of about 1.2 million transactions in March, compared with Ethereum’s 110, according to block explorer data. Ten thousand. Abiscayne and ether scan.

Riyad Carey, research analyst at crypto data firm Kaiko, also sees potential airdrops and enthusiasm for new chains as the driving force behind the Layer 2 initiative. For example, Arbitrum’s ARB token airdrop last month. He is “interested to see what Arbitrum’s user count and transaction volume will look like once the airdrop happens.”

However, Carey believes TVL is an imperfect metric because it depends on changes in token prices. Historically, TVL and token prices have risen in tandem.

Regardless of the price volatility issue, Messari’s Dunbar sees TVL as an “effective mechanism” for measuring “network usage, interest and value as a proxy for pricing in online markets.”

Pedro Lapenta, head of research at cryptocurrency management firm Hashdex, suggested that in addition to TVL, investors should also analyze other metrics such as network and transaction volume, because “in any market segment, no single metric can tell you the whole context.”

“While TVL can be an understandable metric (especially for DeFi), it can also be misleading,” Lapenta said, citing last year’s Sybil attack on Solana that generated a false TVL of $7.5 billion.

ZK-rollup gets more attention

The newly released zero-knowledge rollup (ZK-rollup) zkSync Era and Polygon zkEVM had the fastest TVL growth over the past month. Among them, TVL Polygon zkEVM increased to $5.18 million, an increase of 14% in value over the past 7 days. According to L2Beat, TVL ZkSync Era revenue was $240 million, up 0.2% year-over-year.

ZK-rollup generates cryptographic proofs to prove the authenticity of transactions. They differ from Optimistic rollups, which can challenge and evaluate fraudulent transactions with evidence of fraud.

According to Dunbar, ZK-rollups are often considered the “leading scaling solution” because of their “high security and fast completion times”. However, due to the complex technical design of ZK rollup, these technologies have not reached the level of EVM – which means that the development experience on Arbitrum and Optimism is 100% the same as that on Ethereum.

“Imagine being able to deploy applications on ZK-rollup using the same tools, infrastructure, and smart contract code, or when users can use the same wallets you already use. That’s what the zkEVM race is all about: leveraging ZK technology The benefits of extending Ethereum, but as closely as possible to the Ethereum experience,” Dunbar said.

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According to Coindesk

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