In 2024, one of the most significant trends in the crypto space is the proliferation of layer-2 (L2) blockchains on top of the Ethereum network. Major non-fungible token (NFT) collections like Pudgy Penguins, Bored Ape Yacht Club, and Azuki have announced their own L2s, along with traditional companies like Fox Corporation and Flipkart. While some may view this as hype, it’s likely that we’ll see thousands of L2s emerge within the next year.
The Ethereum Trilemma
To understand why L2s are becoming increasingly popular, let’s delve into the background. The Ethereum network is a first-layer blockchain (L1) that prioritizes decentralization and security. However, it lacks scalability, which is often referred to as the "blockchain trilemma." This means that only two of these three key aspects can be achieved simultaneously.
As a result, the Ethereum network struggles with high transaction costs and slow execution times. To address this issue, L2s, also known as rollups, were created. They process transactions off the Ethereum network by consolidating them into batches and sending those batches to the main network. This approach makes transactions cheaper but introduces new challenges.
The Pain Points of L2s
While L2s offer a solution to the scalability issue on the Ethereum network, they also present two major pain points:
Fragmentation
Market liquidity is divided across L2s, leading to a poor user experience. Users must constantly switch between wallets and "bridge" their assets across networks. Furthermore, bridges and wrapped assets have been targeted by hackers in recent years.
Instability and Unpredictability of Transaction Costs
Transaction costs on L2s can fluctuate wildly, making it difficult for developers to plan and budget for their applications.
The Solution: Thousands of L2s
To address these pain points, thousands of new L2s are emerging. Launching and maintaining an L2 has become relatively quick and inexpensive due to the rise of Rollup as a Service (RaaS) companies like RaaS Gateway. These rollups are constructed using chain-development kits (CDKs) from larger L2s such as Polygon, Optimism, Arbitrum, and ZkSync.
Two categories of blockchains have gained popularity in this space: appchains and sector chains.
Appchains
L2s created to support only one application, offering a controlled environment with cheaper and more predictable costs than building on public L2s.
Sector Chains
Blockchains (usually permissioned) created to serve specific sectors, such as gaming or real-world assets (RWAs). These environments are more suitable for financially sustainable on-chain development and offer greater efficiency than public L2s.
The Rise of Aggregation Layers
To address the issue of fragmentation, aggregation layers like AggLayer are being developed. This project uses zero-knowledge (ZK) proof technology to enable instant interoperability between chains connected to it, making these chains cheaper in the future.
Big names like OKX, Ronin, ImmutableX, Telegram Open Network (TON), and Fox Corporation have or are in the process of connecting L2s to AggLayer. Even Ronin, one of the biggest gaming blockchains in the world, is considering transitioning from an L1 to an L2 connected to AggLayer.
Conclusion
The emergence of thousands of appchains and sector chains will be crucial for financially sustainable on-chain development. ZK aggregation layers like AggLayer will solve much of the fragmentation pain experienced today. This inviting dynamic encourages other L1s to migrate to the Ethereum ecosystem, taking advantage of increasingly unified liquidity and focusing less on infrastructure.
The Future of Ethereum
As we look ahead to a future with thousands of L2s, it’s clear that the Ethereum ecosystem will become even more vibrant and dynamic. With the rise of aggregation layers like AggLayer, developers will have more tools at their disposal to create innovative applications and services.
This article is for general information purposes only and should not be taken as legal or investment advice. The views expressed here are the author’s alone and do not necessarily reflect those of Cointelegraph.
About the Author
Lugui Tillier is a guest columnist for Cointelegraph and the business development director of Lumx, a Web3 startup in Rio de Janeiro that counts BTG Pactual Bank among its investors.
