The emergence of an L2 ecosystem has proven to be a valuable addition to the blockchain sphere
Blockchain layers are the inevitable result of the shortcomings of traditional blockchains, or Layer 1 platforms as they have come to be known. Layer 2 platforms have been hotly anticipated in the industry since the Ethereum Foundation began embracing the concept as a concrete solution to Ethereum’s ongoing scalability challenges. Over the past year in particular, as interest in the crypto ecosystem has reignited, the Layer 2 landscape has grown rapidly, with the total value locked reaching an all-time high of around $50 billion in June. While the recent market pullback has consistently pushed this figure down, user activity underscores the overall growth trajectory.
One notable feature is the distribution of value and utility within the L2 ecosystem, which is beginning to mirror that of the broader cryptosphere. General-purpose platforms such as Arbitrum One, Base, and OP Mainnet carry the majority of traffic, similar to how BTC, ETH, and USDT dominate the cryptocurrency rankings. However, application- or use-case-specific blockchains such as Immutable X and Sorare, which are focused on gaming, also contribute to diversity and address a wide range of user and developer needs.
Sanket Shah, VP of Growth and Business Development at Polygon, which has pioneered the L2 concept since 2017, recently shared another reason why application- or utility-specific chains can hold up so well against general-purpose competitors:
“Differentiation is a major priority for many Layer 2s because using one layer can come with tradeoffs, and the best part of coexistence is having a differentiated blockchain space. In other words, it’s about finding the right utility for Layer 2.”
So while targeting a segment like “blockchain for gamers” or “blockchain for payments” is one way to differentiate, L2 platforms also differentiate themselves on specific features, such as Aztec Network and its ZK-enabled privacy.
However, he warns against the risks of too much differentiation:
“A multi-layer ecosystem can become fragmented, making it difficult for chains to communicate. The risk of having too many Layer 2s that can’t communicate with each other is that they become siloed and simply fail to realize their potential.”
Polygon has had time to think about this challenge. Its Chain Development Kit (CDK) solution provides developers with a standardized stack to create sovereign zk-compatible Layer 2s that can easily interoperate with each other.
Then there’s the newest level of the stack: Layer 3, which takes specificity even further. Layer 3 typically functions as a utility-specific platform that introduces functionality like interoperability or customizations not available on the two lower layers. An example is Orbs, which functions as a decentralized, serverless cloud for deploying smart contracts, which integrates with multiple Layer 1 and 2 platforms for underlying security.
Layer 1 – Still in the game
What does all this higher-layer development mean for the established group of Layer 1 platforms that don’t necessarily share Ethereum’s need for a Layer 2 ecosystem?
Well, it seems that a rising tide lifts all ships. Far from diverting activity away from existing L1s, the proliferation of Layer 2 and 3 platforms seems to be having the opposite effect on growth and development. As Luigi D’Onorio DeMeo, COO at Ava Labs (developer of the Avalanche blockchain), points out:
“There are different types of Layer 1 blockchains on the market. Monolithic chains like Solana aim to increase the capacity and throughput of a single chain. Other ecosystems, like Avalanche, build an interoperable network of L1s connected together by a common communication protocol. Additionally, they aim to scale the capacity and throughput of a single chain.”
These strategies are paying off. In June, Solana announced the launch of ZK compression of blockchain data directly on its Layer 1, introducing improved scalability.
Meanwhile, Avalanche’s efforts to grow its ecosystem and network have also paid off. The California Department of Motor Vehicles recently chained 42 million vehicle records using Avalanche as part of its ongoing efforts to reduce fraud and streamline the vehicle transfer process. Cosmos, another multi-chain L1, recently welcomed Router, a platform focused on blockchain abstraction, into its fold. Chain abstraction is designed to solve a very real UX challenge: a multi-chain ecosystem can quickly become overwhelming.
Despite its complexity, the emergence of an L2 ecosystem has proven to be a valuable addition to the blockchain sphere. It provides much-needed alternatives to Ethereum users, creating the competitive imperative for further development of established L1s while supporting the overall growth of the ecosystem.
