By Michael Scott
The recent report of Ethereum state by Messari indicates that the layer-2 blockchains are responsible for surging numbers within the network.
Messari’s analyst Kunal Goel attributes the rising Ethereum-based transactions to the explosive unveiling of Coinbase’s Base. Also, the virality demonstrated by friend-tech is accelerating the numbers within the Ethereum network.
Layer 2 Solutions Dominating Majority of Ethereum Transactions
The report reviews the third quarter performance of Ethereum where the layer-2 networks hosted the majority share of the transactions. In particular, the layer 2 networks accounted for 61% of the transactions executed within the Ethereum network.
Kunal Goel who is a lead research analyst at Messari explained that the surge in transactions is spawning from the explosive Coinbase -owned layer-2 network Base. The senior analyst at Messari observed that Base activity would quickly overtake the transactions executed on Ethereum’s mainnet. The layer-2 activities would rise rapidly following the unexpected popularity realized by the Friend.tech identified as a social token platform.
Goel admitted that the Base and Friend.tech combination caught him off guard on their popularity. The analyst labeled Base as impressive in how the quick growth of a single app can quickly turnaround activity for the entire blockchain.
Goel observed that newly unveiled chains often suffer cold start challenges. Fortunately for Base, the social-oriented Friend.tech facilitated simultaneous onboarding of traffic and funds.
Goel reiterated that users desire developers to unveil good applications. Doing so creates a receptive community for the application as demonstrated by Friend.tech choosing Base for its unveiling. Nonetheless, the analyst warned that the blockchain landscape is yet to relinquish the bear market. Consequently, enthusiasm and interest is relatively low.
Messari’s Review of Base and Arbitrum Activity
Base is a layer-2 blockchain incubated by Coinbase that has consistently realized impressive growth since its unveiling in early August. A review of the Base activity from the DefiLlama shows its total value locked at approximately $335.19 million. The activity firmly positions Base among the top four ranked layer-2 solutions trailing Arbitrum and Optimism alongside third placed zkSyncEra.
Arbitrum dominance is undisputable with the layer-2 solution attracting 600000 daily transactions. It offers a 200,000 margin from its primary competitors, Base and Optimism as identified by Messari. Nonetheless, Base and Optimism are cannibalizing the Arbitrum activity with the transactions executed in the third quarter declining by 36%.
A review of the 21.co’s Dune data affirms the essential lead by Arbitrum relative to the total value locked (TVL). Arbitrum TVL approximates $4.22 billion, almost tripling the second-placed Optimism at $1.27 billion.
Goel observed that both Arbitrum and Optimism portray flipping market capitalization. The former commands a $30 million margin with its market capitalization approximating $1.067 billion as per CoinGecko data.
Goel admits that the increased Layer-2s lead in activity is unsurprising. He indicated that analysts have often restated the perspective that L2 transactions will ultimately overtake Ethereum’s activity. The analyst recalls that the bull market witnessed in 2020-21 showed that Ethereum mainnet was inadequate.
Goel’s view resonates with the pronouncement issued by Eliezer Ndinga in his capacity as the 21.co. The latter predicted the trend alleging that blockchains suffer limited scale.
Ndinga likened the scaling solutions to the bandwidth that expanded the internet boundaries from dial-up era to shorten time web pages would take to load on the web browser. He bullishly identified the layer-2s as a force that would prompt the reputable financial institutions to adopt the technology.
Layer 2 Solutions Garner Bullish Prediction
Goel echoed the bullish prediction of the Layer-2s arguing that greater activity translated to market capitalization growth. The analysts indicated that the accomplishment of layer-2s necessitates providing higher security from Ethereum matching the demand for its data availability service.
Goel admitted that it would become exciting to watch the extent that Layer-2s would become cheap following the Dencun upgrade. Also, the analyst indicated the need to monitor the activity the L2s would realize once they became cheap.
Goel restated his long-term view that all DEX trades should relocate to the layer 2 solutions to minimize their transaction fees. The analyst concluded by indicating that the migration would benefit the decentralized exchange trades with high-velocity transactions.