With the upsurge of DeFi, NFT, and GameFi, the market's demand for Ethereum expansion is more urgent.

As of September 14, L2BEAT data shows that the total lock-up volume on Ethereum Layer 2 has exceeded 3.2 billion US dollars. This number is still on the rise.

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(Data source: l2beat)

Following the collective rise of tracks such as NFT and GameFi, funds have recently begun to flow into major Layer 2 expansion agreements.

Judging from the direction of this wave of capital inflows, many Layer 2 upstarts have been born on the track.

The "new nobles" of the Layer2 sector

In mid-June, the lock-up volume of Polygon, the leader of the Layer 2 track, reached the highest point of 10.54 billion US dollars, and then began to decline to a certain extent. The recent Polygon locked-up volume is about 4.72 billion US dollars, which has dropped by about 55% compared to the previous high point.

In mid-June, the lock-up volume of Polygon, the leader of the Layer 2 track, reached the highest point of 10.54 billion US dollars, and then began to decline to a certain extent. The recent Polygon locked-up volume is about 4.72 billion US dollars, which has dropped by about 55% compared to the previous high point.

As of September 14, l2beat data shows that on the Layer 2 track, the expansion plan Arbitrum currently has the highest lock-up volume, about $2.2 billion, accounting for 72.93%. Followed by dYdX, the lock-up volume exceeds 329 million US dollars, accounting for 11.22%. Optimism, an old-fashioned Ethereum expansion solution, is in the third place, accounting for about 6.06%.

(Data source: l2beat)

(Data source: l2beat)

The concept of Layer2 (or L2) is a collection of many Ethereum expansion solutions, mainly including Rollups (ZK Rollup and Optimistic rollup), Sidechain (Sidechain), State Channels (State Channels), Plasma, Validium, hybrid solutions, etc. technical direction. This kind of expansion does not affect the Ethereum public chain itself. Most of the solutions put all the complex calculation and transaction processes off the chain, and only store the results on the chain, so as to save transaction costs and time by trading off-chain, and improve transaction experience.

According to the distribution of active projects in the Layer2 section included in l2beat, the distribution of active projects in this section is as follows:

According to the distribution of active projects in the Layer2 section included in l2beat, the distribution of active projects in this section is as follows:Polygon、Loom、Ronin、xDai 

Plasma：OMGNetwork、LeverJ 

ZK Rollup：dYdX、LRC、ZLS、Herme、zkSync、Aztec 

Optimistic Rollup：Habitat、Arbitrum、Optimism 

Validium：DeversiFi、Sorare、ImmutableX 

other:CELR、SKL、Nahmii

Side chain:Compared with other Layer 2 solutions, Polygon has taken the lead in the DeFi boom. DeFi blue-chip projects such as AAVE, Curve, and Sushiswap support the main TVL on this chain. It continues to attract more and more projects from the Ethereum community. Polygon continues to push up its market capitalization and market share with its outstanding performance in fundamentals.

According to defillama data, the total lock-up volume of the entire DeFi has exceeded 180 billion US dollars. Among them, the lock-up volume on the Ethereum chain is firmly at the top, and BSC, Terra, Solana, Avalanche, and Fantom have taken most of the rest of the market share. In theory, almost all mainstream DeFi will choose their own Layer2 migration plan. The head effect of the Ethereum DeFi project is very obvious, and the migration led by the head DeFi will eventually lead to the outbreak of Layer2.

In this wave of transfers, Layer2 solutions are not the only ones. Many DeFi projects can choose to deploy multiple Layer2 solutions to accelerate their own project development, and cross-migration has occurred.

Compared with other Layer 2 solutions, Polygon has taken the lead in the DeFi boom. DeFi blue-chip projects such as AAVE, Curve, and Sushiswap support the main TVL on this chain. It continues to attract more and more projects from the Ethereum community. Polygon continues to push up its market capitalization and market share with its outstanding performance in fundamentals.

NFT and DeFi also have "combinable" attributes, and also have the potential to form a rich ecosystem. The NFT trading platform and Layer2 can guide projects and exchanges, attracting users, speculators and collectors to the NFT market.

In July, Layer2, represented by the digital football collection platform Sorare, superimposed the NFT concept. Within a few weeks, the lock-up volume increased rapidly, and once occupied the top position in Layer2 lock-up volume growth.

In subdivided fields such as blockchain games, Layer 2-based NFT protocols such as Immutable X and ZKBox have gained more popularity. Immutable X is more suitable for decentralized markets, blockchain games, etc. It is characterized by compressing the amount of information for trading NFTs to reduce unit costs; ZKBox is also a Layer2-based ZK Rollup protocol designed to reduce transaction time and Gas cost.

Subsequently, the outbreak of concepts such as GameFi and Metaverse led to the breakthrough of many emerging Layer 2 projects.

The side chain Ronin is a case that turned out to be: Axie Infinity chose to make the Ethereum side chain Ronin and migrate it, which greatly weakened the connection between the price of the game pet Axie and the level of Gas.

In subdivided fields such as blockchain games, Layer 2-based NFT protocols such as Immutable X and ZKBox have gained more popularity. Immutable X is more suitable for decentralized markets, blockchain games, etc. It is characterized by compressing the amount of information for trading NFTs to reduce unit costs; ZKBox is also a Layer2-based ZK Rollup protocol designed to reduce transaction time and Gas cost.

These subdivided Layer 2 projects were quickly adopted by some well-known chain games. In terms of user experience, the advantages of these protocols often focus on fast speed, no gas fee or very low gas fee, compatibility with MataMask, etc., for the interactive environment of chain game players quite friendly.

In addition, the Layer 2 point-to-point decentralized derivatives protocol Injective Protocol, the Layer 2 sidechain xDAI Stable Chain fully compatible with Ethereum, and the Ethereum-based elastic sidechain network Skale have also performed brilliantly in recent months.

These subdivided Layer 2 projects were quickly adopted by some well-known chain games. In terms of user experience, the advantages of these protocols often focus on fast speed, no gas fee or very low gas fee, compatibility with MataMask, etc., for the interactive environment of chain game players quite friendly.In the market, the ecology of Ethereum competition chains such as Fantom, Solana, Near, and Avalanche is getting bigger and bigger. At the same time, it is forcing funds, users, and hotspots to return to Layer 2 of Ethereum. right.

Hotspot conduction, the trend and opportunity behind Layer2

Has Gas Fee Really Been Cheaper? Is it cheap enough? Is it really more convenient to operate?

Layer 2 is more suitable for high-frequency trading scenarios. Ordinary investors with a large total amount of funds and a large user base have greater demand for Layer 2. Top projects have the potential to become a gathering point for applications, users, and funds, or there will be larger-scale wealth aggregation effect.

After the emergence of Layer 2’s greater combination of NFT and GameFi, the market’s expectations for Layer 2 are not limited to solving Ethereum congestion, but also hope that high-quality Layer 2 projects can import a large number of users in the DeFi ecosystem into NFT, GameFi, etc. Projects in the field make these projects have a stronger "out-of-the-circle effect".

How will the next market be affected by Layer2 projects? Mainstream voices in the market are focusing on these directions:

(1) Layer 2 infrastructure in the subdivision concept

With GameFi and NFT bringing greater user demand, basic applications such as Layer2 and middleware have become inevitable market hotspots.

It can already be seen in the market that top DeFi projects are adopting Layer 2 technology on a large scale, and this adoption will also continue to new hotspots. In the long run, various Layer 2 technologies can enable DeFi projects to obtain a better user experience, and the project party will also update and iterate the infrastructure according to the actual situation. Layer 2 may be a long-term track and hot spot.

(2) Layer2's cross-chain and aggregation tracks

After a large number of projects have established their own Layer 2, the interconnection between the same protocols becomes possible. Cross-chain and aggregation tracks between different Layer2s are also worthy of attention.

At present, the number of EVM side chains is increasing day by day, and the general-purpose cross-chain bridge has also played a greater role, and the powerful Layer2 bridge is also the most anticipated among the cross-chain bridges. The Layer2 bridge is called a new type of bridge. Since the Layer1 blockchain has the custody of funds, the bridge must ensure that the Layer 2 protocol will not be damaged. For example, Hop Protocol sets up bridges for different assets in different Layer2 networks to realize asset transfer between multiple networks.

In addition, as the Ethereum expansion track gradually matures, ecological expansion solutions may coexist for a long time, and the number of aggregators for Layer 2 multi-expansion solutions is also increasing. These platforms can often become a modular, universal, and flexible expansion framework , while simplifying the steps for users to use Layer2, improving user experience and transaction efficiency.

(3) Layer2 Derivatives

In cryptocurrencies, the trading volume of derivatives has far exceeded the volume of spot trading, often becoming the source of price fluctuations. Decentralized derivatives are also considered beneficiaries under Layer 2.

For perpetual contract transactions with high transaction frequency, dYdX, Perpetual, and Injective have all started to adopt Layer 2 solutions. dYdX is a typical case. At present, the transaction volume of dYdX has exceeded 1.2 billion US dollars, which is a rapid increase of more than 40 times compared with three months ago. Many people attribute this increase to StarkWare, dYdX's second-tier solution.

(4) Layer2-based stablecoin derivatives

Algorithmic stablecoins and stablecoin derivatives that have joined the Layer2 cross-chain solution are also worthy of attention. The emergence of Ethereum-compatible sidechains and stablecoin derivatives xDai has allowed the market to see more possibilities for Layer 2 to solve problems.

Layer 2 debate: whether the core of the problem under the data is really solved

However, while the total lock-up volume of the Ethereum Layer 2 network has hit new highs, many investors from the community are still dissatisfied with the existing Layer 2 tools.

Has Gas Fee Really Been Cheaper? Is it cheap enough? Is it really more convenient to operate?

Some voices from the community believe that the current market enthusiasm for Layer 2 is mainly due to the airdrop expectations for Arbitrum, zkSync, Optimism and other unissued currency projects, but this enthusiasm is unsustainable.

Whether the "Layer 2 Summer" can really come, still needs more observation. According to the Gas fees currently consumed by different Layer 2 displayed on l2fees.info, the current mainstream method can reduce the fees to a certain extent, but most of the Gas fees still have room for further reduction. At the same time, although the entry cost, transfer cost, Dex transaction cost, and liquidity addition cost for users have dropped significantly compared to Layer 1, there are still great differences between different Layer 2 projects and different fees.

(Data source: l2fees.info)

(Data source: l2fees.info)

In terms of data, Uniswap V3 currently locks more than $20 million worth of encrypted assets on the Ethereum Layer 2 solution Arbitrum. If compared with the many projects that have hundreds of millions of dollars locked on Arbitrum, Uniswap's lock-up volume is still very small. The relatively sluggish trading volume shown after Uniswap v3 layout Layer2 also explains to some extent The market acceptance of Layer2 is still insufficient.

In any case, for a long time, Layer2 has been developing in an orderly manner amidst various doubts. At present, we can see a real market scene and gradually develop into a richer ecology. At present, multiple types of expansion solutions may coexist for a long time. Whether Layer 2 can usher in an explosive period still requires further thinking and observation by the industry.