Solutions without problems: How many Ethereum layer 2s are too many?

Ethereum’s Dencun update has led to a Cambrian explosion of layer 2s, but industry insiders say there are already far too many.

There are 73 layer-2 blockchains listed on L2beat, with 82 in the pipeline.

Adrian Brink, co-founder and CEO of the intent-based blockchain Anoma, believes that’s 10 times more than the industry actually requires.

“Of the current crop we’re looking at, we need only about one-tenth of what we’ve currently got,” he told Cointelegraph.

Brink says infrastructure is now outpacing user-focused applications by some margin, delivering infrastructure without use cases.

“We need to find applications to run on all these things, and this is the bigger challenge,” said Brink.

Total value locked on L2s currently stands at .6 billion. Source: L2beat

Vitali Dervoed, the CEO and co-founder of perpetual exchange Composability Labs, also sees additional challenges arising from the proliferation of L2s.

“We currently have too many,” said Dervoed. “The more L2s we build, the less interoperability we will have, creating other problems around infrastructure.”

Dervoed said that while each project aspires to grow and develop the ecosystem, the cumulative effect is harmful to the wider industry.

“Developers might have good intentions when building the next super-fast, low-gas-fee, easy-to-use blockchain, but in the long run, it’s counterproductive as it creates a more fragmented ecosystem.”

What has gone wrong?

The issues raised by Brink and Dervoed suggest the industry is in danger of drifting off course.

“We have to take into account that a lot of the demand for new infrastructure stems from hype,” Dervoed said. 

Dervoed points out that this is not uncommon in crypto — it’s happened before.

“For example, when ZK [zero-knowledge] tech started to become more trendy, we saw an increase in the number of ZK-rollups, but whether or not they are actually needed is another question,” Dervoed said.

“I think we should explore things that actually enable new use cases that enable new kinds of applications,” Brink said. 

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Brink believes adoption will stagnate without those new use cases, and in fact, he’s concerned that is already the case as infrastructure is fudging activity through incentivized airdrop farming.

“I’m just very skeptical on the actual usage numbers,” said Brink, who added that the current promotion model creates a mini boom-bust cycle: “Point program happens, token gets distributed, usage drops to zero. It seems unlikely to me that this is a good long-term structure for the industry.”

Incentivized airdrops have proved effective at inducing onchain activity from the crypto community, but they often cause problems later down the line.

In June, LayerZero issued its ZRO token following an extended Sybil — meaning duplicate account — hunt. The company publicly stated that most airdrop hunters have “little to no interest” in a project’s long-term prospects. The token price fell 17% after issuance.

“Airdrop farming may overall be unsustainable, but especially airdrop farming on just the same thing but in a slightly different color is not going to fly long term,” Brink said.

Without blockchain use cases, no one will come

The concerns about the overabundance of L2s are only one side of the equation. If too much energy is being applied to infrastructure, it may also follow that something else is being neglected.

Dervoed said it’s time to focus on users and work on creating something truly compelling.

“While robust infrastructure is crucial, infrastructure is not what draws people to new technologies. Blockchain’s true value lies in its ability to solve real-world problems and create new opportunities,” Dervoed said.

“Without compelling use cases, broader audiences won’t care about blockchain,” he added. “Interesting use cases will fuel the demand for infrastructure improvements. We need to start with the use cases and then develop infrastructure, not the other way round.”

Finding real value

Not everyone agrees that L2s are oversupplied. Some believe there is room for all of them.

Elena Sinelnikova, co-founder of layer-2 project Metis and the nonprofit education platform CryptoChicks, is among them.

“Every L2 project has its own vision and purpose and can become successful if focusing on it,” she said.

Metis seeks to distinguish itself from the pack by offering “decentralized sequencers.” Sinelnikova says the typical sequencer model “represents a single point of failure and centralizes transaction revenue,” while Metis “utilizes multiple sequencers operated by independent parties.”

Brink believes L2s can justify themselves if they find unique applications. Brink, who is skeptical of the current batch of layer-2s, predicts that one day we could see layers-2s in the “hundreds of thousands” because we need “hundreds of thousands of independent systems that can interoperate with each other.”

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“L2s are good,” said Brink, but not “if they do exactly the same thing” as the layer 1, only “slightly faster.”

Variety is key. As Dervoed added, “Different L2s serve certain use cases better than others. For example, some L2s are focused on gaming while others, such as Fuel, an upcoming L2, facilitate crypto trading.”

The nuanced case for layer-2s and their skeptics is that they need to find something beyond speed to make them worthwhile.

“Without real-world use cases, all this infrastructure is being built for the sake of it and it is becoming a very expensive experiment,” Dervoed said.