In a recent report by investment firm VanEck, Ethereum layer 2 (L2) networks are anticipated to reach a staggering valuation exceeding $1 trillion by the year 2030. However, despite this optimistic forecast, VanEck remains cautious about the long-term prospects of several networks within this sector.
VanEck conducted a comprehensive evaluation of 46 layer 2 networks, assessing them across five critical areas. Their analysis led them to predict the emergence of “thousands” of rollups, with Arbitrum currently standing as the most prominent ecosystem, boasting over $18 billion in locked tokens.
Patrick Bush and Matthew Sigel, analysts at VanEck, project Ethereum to capture a substantial 60% of the market share across all public blockchains. Their estimation is founded on the existing volume of assets within the Ethereum ecosystem, indicating a strong belief in Ethereum’s future dominance.
Layer 2 networks serve as secondary infrastructure built atop main blockchains like Ethereum, aiming to enhance scalability and transaction speed. Rollups, a specific type of scaling system, are highlighted within this context.
The success and growth of layer 2 networks are expected to hinge on several crucial factors, as outlined by VanEck:
Transaction Pricing: The cost associated with transactions on layer 2 networks plays a pivotal role in attracting users. Factors such as data compression, scale, proving costs, and profit margins contribute to differentiation in transaction pricing.
Developer Experience: Compatibility with the Ethereum Virtual Machine is deemed essential for attracting developers to layer 2 networks. Seamless porting of smart contracts and tooling from Ethereum ensures a favorable developer experience.
User Experience: The efficiency of onboarding assets and withdrawal processes significantly influences the overall user experience on layer 2 networks.
Trust Assumptions: Establishing trust regarding data availability and implementing measures to prevent exploits and hacks are crucial for fostering confidence in layer 2 networks.
Ecosystem Size: The strength and vibrancy of an L2 network’s ecosystem are significant indicators of its value. The amount of value locked within an L2 network reflects user engagement and investment in opportunities within the ecosystem.
Despite the optimistic outlook, VanEck remains cautious about the long-term viability of many layer 2 tokens. The firm anticipates fierce competition among layer 2 networks, expressing bearish sentiment regarding their outperformance in the market.
According to Busk and Siegel, analysts at VanEck, the top 7 tokens for layer 2 collectively already command a substantial valuation of $40 billion. With numerous robust projects poised to launch in the medium term, they anticipate an influx of approximately $100 billion in additional valuation over the next 12-18 months. This influx of supply could potentially lead to significant discounts in the crypto market, posing risks to the sector’s growth and stability.
