Ethereum L2 Activity Spikes
Optimism and Base gain momentum
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This week we step back from the recent volatility to discuss a growing area within crypto: Ethereum layer 2s. We analyze the competitive landscape within optimistic rollups, dive into key metrics and explore the impacts on the broader Ethereum ecosystem.
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether
- Bitcoin network fees dropped by 16.6% despite the number of transactions remaining relatively high
- Ethereum fees increased by 2.6%, accelerating in the last few days as market volatility picked up
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges
- Bitcoin and Ether recorded a total of $400M in net CEX outflows, potentially suggesting buying activity from holders looking to keep custody of their assets
Ethereum L2 Activity Spikes
Ethereum scaling solutions have been getting an increasing amount of traction in the past few months. New layer 2s (L2s) are launching almost every week now as competition in the space heats up. The most recent launch to quickly attract users was Coinbase’s Base L2.
Built on top of the OP Stack, Base is a separate L2 built with the same infrastructure as Optimism, but with its own set of sequencers batching transactions onto Mainnet. Within just a few weeks of launching Base surpassed Optimism in terms of daily transactions but has since fallen back lower.
Optimism Momentum — The Optimism network and OP token have been gaining steam recently
- Optimism transactions hit a new all-time high on Wednesday, surpassing Arbitrum transactions for the first time in 2023
- Sam Altman’s Worldcoin launch on Optimism a few weeks ago contributed to the rise in transactions as users claim WLD tokens
- Though Base transactions are not settled on Optimism’s network, part of the fees Coinbase earns are shared with the Optimism DAO, helping boost its revenues
- These factors have helped support the OP token, which has decreased by just 1% over the past 30 days, compared to ARB’s -18% and MATIC’s -20% performance
As competition between L2s grows, it becomes clear that Ethereum benefits.
2nd Highest — The number of transactions processed between Ethereum Mainnet and the major optimistic rollups hit their second largest value in history
- The prior high set in March 2023 took place on the day of the ARB airdrop, which distributed $1.7B in tokens to users
- The total number of transactions including L2s are now roughly 3x higher than during the bull market peak, when activity only took place on mainnet
- Despite L2’s growth, Ethereum mainnet does not seem to be meaningfully cannibalized as transactions there remain at ~1M/day, just as they were a year ago
Additionally, Ethereum appears to be benefitting from each rollup attracting slightly different audiences.
Arbitrum Dominating DeFi — The Arbitrum ecosystem remains the most liquid and active for financial applications
- Arbitrum’s TVL and daily volume numbers outpace all L2s and most L1s per DeFi Llama data
- Within just a few weeks Base already has accumulated $170M in TVL, surpassing Cardano and Bitcoin
EIP-4844 Catalyst — The upcoming Ethereum Dencun upgrade implements an improvement proposal expected to decrease L2 transaction costs by 10x-100x
- While the timeline for the Dencun launch has not yet been made official, it is likely to take place in the fourth quarter of the year
- More clarity on the launch date is likely to come after the Devnet 8 testnet goes live next week, where Ethereum developers will be implementing all improvement proposals set to be included in Dencun
- Both optimistic and zero-knowledge (ZK) rollups will benefit from this scalability improvement, and are expected to attract more users as costs decrease by an order of magnitude
Overall, despite market volatility, it seems that L2s for Ethereum have been a bright spot. Optimism has gained momentum with the OP Stack becoming quickly adopted. Base has become one of the fastest growing chains. And Arbitrum continues to dominate DeFi even if it’s getting less attention than it did shortly after the airdrop. All of these L2s are poised to benefit greatly from the implementation of the Dencun upgrade and ultimately help push Ethereum towards broader adoption.
