Ethereum (ETH) Layer 2 Networks’ total value locked hovers at near record high, data shows
As the price of ether rose in April, so did the total value locked (TVL) of Ethereum’s layer 2, or companion network, reaching $10 billion on April 14, its highest level yet. TVL has subsequently fallen amid a tizzy in crypto prices, but remains at around $9.29 billion, more than double what it was at the start of the year, data from Tier 2 analytics site L2Beat shows.
L2Beat data shows that around five million Ether (ETH) worth over $10 billion was locked on the Ethereum blockchain in mid-April when ETH rose above $2,100. TVL has fallen 10% over the past five days to its current level as ETH dipped below $1,900. On January 1st, with ETH below $1,200, TVL was just $4.1 billion.
Messari research analyst Stephanie Dunbar told CoinDesk in an email that the Layer 2 network’s recent TVL increase has come as users grow weary of Ethereum’s high fees during periods of high network demand and opt for less expensive platforms, many of which have sprouted up in recent months.
Arbitrum One dominates the layer 2 scaling landscape, accounting for more than 66% of the market share, according to L2Beat. Optimism comes with over 20% of the market share. Both Arbitrum and Optimism are optimistic summaries designed to reduce transaction costs.
Riyad Carey, research analyst at crypto data firm Kaiko, also sees potential airdrops and enthusiasm for new chains running Layer 2 initiatives, including Arbitrum’s own airdrop of its ARB token last month. He told CoinDesk he was “curious to see how sticky Arbitrum’s users and transactions will be now that the airdrop has happened.”
Carey added that he considers TVL to be a flawed metric because it depends on the token’s price movement. Historically, TVL and token prices rise simultaneously.
Despite the price fluctuation issue, Messaris Dunbar sees TVL as a “legitimate mechanism” to measure “network usage, interest, as well as value in terms of being representative of the market’s valuation of the network.”
Pedro Lapenta, head of research at crypto-asset manager Hashdex, suggested that in addition to TVL, investors should analyze a network alongside other metrics such as transaction volumes because “in any analysis, an isolated (metric) cannot tell you the whole picture.”
“While TVL can be an easy-to-understand metric (especially for DeFi), it can also be misleading,” Lapenta told CoinDesk, pointing to a Sybil attack on Solana last year that created $7.5 billion in fake TVL.
Recently unveiled zero-knowledge (ZK) rollups zkSync Era and Polygon zkEVM have recorded the fastest growing TVL over the past month, with TVL rising on the latter to $5.18 million, up 14% over the past seven days. The ZkSync Era accounted for $240 million in TVL, up 0.2% over the same period, according to L2Beat data.
ZK digests generate cryptographic evidence to validate the authenticity of transactions. They differ from Optimistic rollups which can be challenged and assess fraudulent transactions through fraud evidence.
According to Dunbar, ZK rollups are generally considered “top-notch for scaling” due to their “high security guarantees and fast completion times”, but the challenge remains to achieve EVM equivalence – meaning that the experience of developing on arbitrage and optimism is 100% identical to the experience of developing on Ethereum – given the complex technical design of ZK rollups.
“Imagine being able to deploy an app on a ZK digest using the same tools, infrastructure and smart contract code, or a user being able to use the same wallets you already use,” Dunbar said.
“This is what the race for zkEVMs is all about: scaling Ethereum with the benefits of zk technology, but staying as close as possible to the Ethereum experience,” she added.
