Ethereum Layer 2 Rises to $5 Billion in Locked Value. This is why

Arbitrum currently owns more than half of all total value locked to Tier 2.

Within Ethereum Layer 2

Ethereum’s Layer 2 ecosystem is on the rise.

Per L2Beat data, the total value locked in the Layer 2 scale networks of the top smart contract blockchain exceeded $5 billion on Wednesday, up 9.2% over the past week. The total value locked on Ethereum Layer 2 is currently about $5.09 billion.

The jump in locked value comes amid a period of bullish momentum in the cryptocurrency market. Amid the uptick, ETH has gained nearly 20% in market value over the past week and is currently trading at around $1,540. ETH is widely used as a Layer 2 base asset of Ethereum, so the increase somewhat explains the increase in total locked value.

Arbitrum One and Optimism, two Optimistic Rollup solutions that together account for more than 80% of value locked at Tier 2, have seen increases of 9.3% and 10.3% in total locked value, respectively. Arbitrum One currently has about $2.59 billion, more than half of the locked value at Layer 2.

While the ETH uptick has propelled Tier 2 locked value to a new all-time high, it’s not the only factor behind the surge. This week is an important week for the Layer 2 ecosystem as zkSync is about to launch its new product, zkSync 2.0, on mainnet Friday. As a result, capital has flooded into the zkSync protocol, up about 19% this week. zkSync is a ZK-Rollup solution and has so far experienced slower growth than its leading Optimistic Rollup counterparts, but the project hopes tomorrow’s launch will boost the network.

ZK rollups and optimistic rollups

ZK-Rollups use zero-knowledge proofs to bundle transactions and reduce the amount of data required to validate transactions on the Ethereum mainnet, which in turn offers faster transaction speeds and cheaper fees. Unlike Optimistic Rollups, they don’t require a long dispute period to maintain security (for example, it takes about a week to transfer money from Arbitrum One back to the Ethereum mainnet). While Optimistic Rollups are currently leading Ethereum’s Layer 2 race, ZK Rollups have long been touted as the technology that could help Ethereum prepare for mass adoption. Ethereum creator Vitalik Buterin has discussed them at length, arguing at this month’s Devcon conference that they “could be at least as important to technology as blockchains”.

Interestingly, while the total value locked at Tier 2 is down from its April 2022 peak in dollars, when it crossed $7.4 billion, the amount of ETH in the ecosystem is now higher. According to L2Beat data, the current total locked value is the equivalent of about 3.25 million ETH after a steady rise over the past year.

While the Ethereum Merge was the second-largest and most anticipated blockchain update this year, Ethereum enthusiasts have long hoped that the growth of Layer 2 will help the ecosystem achieve mass adoption by lowering costs and improving the network. to make it more accessible. While Ethereum mainnet still holds most of all the capital in the crypto ecosystem just under $32 billion locked, layer 2 seems to catch up quickly.

Disclosure: At the time of writing this piece, the author owned ETH and several other crypto assets.