Ethereum’s Layer 2 Networks Reach Record $51 Billion in Total Value Locked

This milestone reflects a 205% increase from $16.6 billion in November 2023, according to data from L2beat.

The rapid growth underscores the escalating investor interest in Ethereum-native assets and the broader adoption of L2 scaling solutions, which are designed to enhance the scalability of the Ethereum network. By processing transactions off-chain and then settling them on the Ethereum mainnet, these L2 networks alleviate congestion, reduce transaction costs, and improve overall network efficiency.

Arbitrum One and Base Lead the Surge

Arbitrum One and Base have been the primary drivers behind the remarkable increase in TVL. Arbitrum One, the leading L2 network, holds over $18.29 billion in TVL, accounting for approximately 35% of the total L2 ecosystem. This represents an 11.5% weekly increase, with canonical assets amounting to $6.44 billion and native assets at $6.90 billion.

Top 10 staked layer 2 tokens. Source: L2 Beat

Base, the second-largest L2 network, has a TVL of $11.40 billion, making up just over 22% of the cumulative L2 TVL. The network experienced a weekly TVL rise of over 10.6%, with significant growth in canonical assets at $3.99 billion and native assets at $7.00 billion.

Base recently achieved a record throughput of 106 transactions per second (TPS) on November 26, marking an almost 28% increase from November 23. This surge in TPS distances Base from competitors like Taiko and positions it as one of the fastest Ethereum L2 solutions. The network’s total number of transactions has crossed the 1 billion milestone, fueled largely by the memecoin craze during the current bull cycle.

The increased activity on Base reflects a broader trend among Ethereum L2s aiming to challenge other high-speed blockchains like Solana. Starknet, for instance, plans to quadruple its TPS to over 1,000 while reducing fees by fivefold in the next three months.

Impact of the Dencun Upgrade

The significant boost in L2 adoption can be partly attributed to Ethereum’s Dencun upgrade, the most substantial network enhancement since the Merge in March. The upgrade has been pivotal in stabilizing fees across L2 networks. Nick Dodson, co-founder and CEO of Fuel Labs, emphasized that the upgrade is more about expanding capacity and scale rather than merely lowering fees.

“With EIP-4844, it’s about fee stabilization and expanding network capacity,” Dodson said. Some L2 networks, including Starknet, Optimism, Base, and Zora OP Mainnet, reported up to a 99% reduction in median transaction fees following the upgrade.

Despite the scalability benefits, some industry experts express concerns that L2s might be “cannibalistic” to the Ethereum mainnet’s revenue and could potentially impact Ether’s price potential. The increasing efficiency and lower fees on L2s might divert usage away from the mainnet, affecting transaction fee revenues that are vital for network security and development.

However, the overall sentiment remains positive as L2 solutions continue to enhance Ethereum’s scalability and user experience. The total value locked across all Ethereum L2s stands at $50.68 billion, reinforcing the ecosystem’s robust growth.

Detailed TVL Breakdown

Other notable L2 networks contributing to the TVL surge include:

• OP Mainnet: Holding $7.99 billion in TVL with a 20.5% increase, and native assets amounting to $3.48 billion.
• ZKsync Era: With a TVL of $1.12 billion, marking a 22.2% rise, and native assets at $688.17 million.
• Linea: Reporting a 12.6% increase to reach $1.11 billion in TVL, with significant growth in both canonical and external assets.

Smaller networks like Starknet, Scroll, and Mode also showed substantial growth percentages, indicating a broad-based expansion across different L2 solutions.