Why is L222 Gaining Momentum in Crypto
It may have started as a meme, but the #L222 movement is seeing significant growth in 2022. Layer 2 solutions built on Ethereum prove to be the gateway for onboarding millions of new users and encouraging existing users to use the solutions a lot more in the future.
The total value of Layer 2 was valued at $7.3billion in Q1 of 2022. This represented an increase of 964% compared to $686.9 million locked in Q1 of 2021. The two most significant L2 solutions, Optimism and Arbiturm, generated over $15 million in fees for the Ethereum network.
Three Contributing Factors
Transacting on Ethereum main net can be almost unusable when the network gets overly congested sending gas fees skyrocketing and speed slows considerably.
Layer 2s have existed for a few years, but a few trusted solutions are making inroads into the Layer 1 users on 2021 growth numbers. These include "rollups" like Optimism, Arbitrum, zkSync, and Starknet.
Cheaper transaction fees (low gas);
Faster throughput; and
Trustless proving mechanisms.
These rollups, bridges, and new dApps can make a massive difference into the user experience when transacting, and an enjoyable experience that does not break the bank will bring them back, time and time again.
Value is growing on l2s
Locked up value is not the only growth metric being seen on L2s. The volumes on decentralised exchanges (DEX) rely on smart contracts to operate rather than third parties to process trades. The largest DEXs which are running on L2 are DYDX and Loopring.
There was a total volume of $3.9 trillion traded over the last twelve months just on spot trading alone. Over the same period, futures based volumes increased by 2,704%, from $7.4 billion to $209.1 billion.
Interestingly, the futures numbers do not include Kwenta, a dApp that leverages the Synthetix protocol at the moment. However, they will soon be supported on their protocol. Kwenta is a permissionless platform that offers perpetual futures contracts on L2 through Optimism.
Currently, the total volume traded on Synthetix futures is about $1.8 billion per day, entirely attributed to Kwenta after it moves to support its protocol. The growing number of projects building on L2s is something to watch.
l2 airdrops for users
Another contributing factor to Layer 2’s growth is the prospect of users receiving airdrops for protocols and projects that have or are going to release a token. One of the most anticipated token airdrops in the L222 movement is Optimism.
Other airdrops that have released their airdrop details soon include Hop Protocol, which allows users to bridge assets across Ethereum Layer 2 solutions and side chains such as Polygon. Kwenta also has released its airdrop requirements to users of the protocol.
Other Layer 2 solutions that are likely to have a token and airdrop its community and users are zkSync, and probably also ZigZag, a decentralised order book using zkSync.
Arbitrum will likely follow suit with that Optimism by releasing a token shortly. And last but not least, the potential list of future airdrops would not be without altogether mentioning the potential of MetaMask releasing a token in the future.
l2 “wars” or assisting in a common goal
The L222 "wars," as labelled by some, might compete for new users, but the end goal all works towards saving users from incredibly high gas fees and a slow network to complete transactions. A win for L2s could be another tick on Ethereum's page to be the long-term settlement layer for all transactions. Other competing L1s may struggle long-term to compete with Vitalik's golden project. The Ethereum founder states that when ETH 2.0 is active that gas fees will only be “truly acceptable” when they are $0.05 per transaction. Achieving this goal will go a long way from reducing the sometimes unfathomable high gas fees when transacting on Ethereum.
The ETH merge to Layer 2 seems to be around the corner. But, there have been constant delays and the true launch is unclear. The growth levels for existing L2s built on Ethereum are likely to continue going rise through 2022 and beyond. The release of tokens by projects should further drive the demand for scaling solutions. Demand and exposure to the networks will be further driven by the likelihood of future airdrops coming to users.
Optimism has announced that there will be two further airdrops for users. Other L2s and bridges will also be releasing tokens for early users of their platforms. Go out and try various networks and complete multiple transactions.
Time will tell if L222 runs true.