Currently, there’s a lot of debate and discussion over the impact of Layer 2 solutions on the Ethereum ecosystem. The Ethereum blockchain community is sailing through rough waters, with revenue hitting no lows.
Discussions have sparked as to how the Layer 2 platforms are taking the lion’s share of revenue while Ethereum mainnet suffers.
Are Ethereum Layer 2s Eating Into Mainnet Revenue?
As the debate emerges whether Layer 2s are good or bad for the Ethereum ecosystem, some market analysts share their insights. Leon Waidmann, the Head of Research at On-chain headquarters, stated that in the short term, L2s are affecting the revenue.
However, he believes that their long-term potential remains largely underestimated. As per the chart below, the adoption of Layer 2s is rapidly increasing.
This suggests that they are pivotal in making blockchain technology more accessible to the masses, said Leon.
Courtesy: Bitwise
Leon said that despite the short-term revenue decline, the broader ecosystem is growing with ETH at its core. Thus, it’s driving the economic activity on the platform as a form of global digital money.
One of Leon Leon Waidmann’s followers on the X platform also supported his thoughts saying,
“If revenues did matter, BTC would be valued at almost zero. Clearly, it’s the Lindy effect + legitimacy + decentralization + censorship resistance that’s more important. Crypto bros, Ethereum is the only self custodial network that is growing exponentially.
Recently, Ethereum co-founder Vitalik Buterin also stated that he’s not interested in either investing or holding L2 tokens.
VanEck Chief Bashes Crtitics
Calling out the constant trolling and ongoing criticism, VanEck Head of Digital Assets Matthew Sigel called the Ethereum bashing “exhausting and intellectually dishonest”.
Sigel emphasized that for Layer 1 blockchains like Ethereum and Solana, the concept of “moneyness” – the extent to which a token is used, held, and trusted – is crucial. Interestingly, he said that in traditional finance, the company’s stock valuation depends on its price-to-earnings (PE) ratio.
In the crypto industry, this metric translates to how well the token serves as a store of value, medium of exchange, and unit of account within its ecosystem.
Sigel added that ETH serves as the base money for Ethereum. The altcoin facilitates the transaction fees and controls the system through validator operations. This core utility supports its broader usage in decentralized finance (DeFi) and other services.
While comparing Ethereum to Solana, Sigel added while the later benefits from lower fees, which may enhance its moneyness, the former is working towards expand its capacity through Layer 2 solutions to reduce user costs and increase economic activity.
Apart from the revenue, another major concern has been the drop in institutional demand. On Friday, VanEck also decided to shut down the Ethereum futures ETF citing less demand. On the other hand, the spot Ether ETFs have seen more than $500 million in outflows since launch in late July.
Furthermore, the recent ETH sell-off by the Ethereum Foundation has created negative sentiment around the altcoin.
