By
Godfrey Benjamin
April 29th, 2024
Bush and Sigel also projected that there is a high chance that L2 networks generate significantly bigger revenues than the base Ethereum network.
Analysts from investment management company VanEck have released a report on the expected growth trajectory of Ethereum layer 2 (L2) networks. According to the April 3 report, Ethereum L2s will hit a staggering $1 trillion market capitalization by 2030.
The report was put together by VanEck’s senior digital assets investment analyst Patrick Bush and digital assets research head Matthew Sigel.
Bush and Sigel made the bold prediction based on the fact that layer-2 blockchains are primed to capitalize on Ethereum’s primary challenge. That is its limitation in terms of processing, storage, and data computing.
They also acknowledged Ethereum’s dominance in smart contracts, which they claim is because of its unparalleled security and decentralization. However, scalability is a critical issue that continues to persist on the network. The analysts noted that as Ethereum’s usage intensifies, transaction fees and processing times also soar. This hinders the network’s ability to meet the demands of a rapidly expanding ecosystem.
Nonetheless, there are ongoing development efforts in Ethereum that seek to enhance its layer-2 transaction processing capabilities.
Updates such as the recent Dencun upgrade demonstrate the resolve of Ethereum to address scalability concerns and improve user experience.
Ethereum Layer 2 Networks to Generate More Revenue Than Base Network in Future
Bush and Sigel also projected that there is a high chance that L2 networks generate significantly bigger revenues than the base Ethereum network. An excerpt from the report reads:
“We expect L2 revenues to exceed Ethereum’s because Ethereum cannot match the transaction throughput or user experience of L2s.”
VanEck’s report paints a picture of a future where thousands of use case-specific layer 2 networks will arise on the blockchain landscape. These networks, segmented by sector, application, or function, are poised to reshape industries and unlock new realms of possibility. From decentralized social media platforms to specialized financial applications, the potential for innovation would be limitless.
According to the analysts, a select few general-purpose layer 2 chains will eventually emerge. These chains will most likely benefit from network effects and become cornerstones of the ecosystem. Bolstered by an unmatched user base, they will be well positioned to capture substantial market value within the space.
VanEck Issues L2 Tokens Warning
Despite the optimism surrounding layer 2 networks, Bush and Sigel have also cautioned against overzealous valuations for L2-related tokens. They noted that there is ‘cutthroat competition.’ Per the report, the top seven Ethereum layer 2 tokens already boast a $40 billion fully diluted valuation, so there is a possibility of potential market saturation. Hence, the need for caution when assessing future growth prospects.
Ethereum’s layer 2 networks continue to evolve in ways that are impactful on the entire industry. With scalability overcoming previous limitations, the journey towards a trillion-dollar market cap by 2030 might well be underway.