Gate Ventures and Cryptomeria Capital Present Their Vision for Layer 2: A Transformative Approach to Blockchain Scalability in Ethereum and Bitcoin

The latest report by Cryptomeria Capital and Gate Ventures This document offers a detailed look at L2 infrastructure solutions, particularly for Ethereum and Bitcoin. It highlights important trends, challenges, and future indicators for L2 rollups, which play a vital role in addressing the scalability and usability challenges facing primary Layer 1 blockchains such as Ethereum and Bitcoin.

Ethereum Layer 2 Growth and Adoption

For more than a year, L2 rollups on Ethereum have surpassed the primary network in user engagement, showcasing their growing significance within the ecosystem. In 2024, activity on Layer 2 solutions surged significantly, with daily transactions hitting a record high of 17 million in August—up 150% since the beginning of the year. This rapid expansion signifies a rising adoption of L2 platforms as users seek more scalable and cost-effective options compared to Layer 1.

The findings also highlight how Layer 2 networks are increasingly important for hosting stablecoins, outpacing other major networks like Solana and Binance Smart Chain (BSC). Currently, L2s hold a greater supply of stablecoins than these platforms combined—boasting a 150% lead over Solana and a 94% edge over BSC. This trend fortifies Ethereum’s L2 ecosystem’s position as a central figure in DeFi.

Despite notable advancements, the report indicates a substantial disparity between the number of crypto asset holders and the daily active users engaged in the ecosystem. There are about 580 million asset holders worldwide, yet only 15 million active wallets were noted in mid-2024. This discrepancy illustrates the persistent issue of converting crypto ownership into routine network participation, simultaneously signaling a considerable potential for future growth.

Challenges and Innovations in Ethereum’s Layer 2 Landscape

The advent of Optimistic and ZK Rollups has become a driving force in Ethereum’s Layer 2 ecosystem. Optimistic Rollups process transactions off-chain, thereby reducing the burden on Ethereum’s main network, while ZK Rollups introduce scalability solutions through cryptographic proofs. However, the report points out that ZK Rollups grapple with technical complexities and user experience hurdles, with initiatives like zkSync, Scroll, and Linea striving to overcome these challenges.

Moreover, the report cautions that not every L2 endeavor is likely to thrive in the long term. It emphasizes the necessity of focusing attention on promising technologies and ecosystems, recognizing that some initiatives may struggle to achieve substantial adoption.

Key Developments on Prominent L2 Platforms

The report highlights multiple L2 networks that have witnessed impressive growth:

Base Network has experienced phenomenal growth, exhibiting a 700% increase in daily transactions over the past six months, largely fueled by decentralized social media and meme-related activities. With a strong user base of over 201,000, Base has swiftly evolved into a major contender in the Ethereum L2 space, securing the second-largest share of L2 stablecoins after Arbitrum.

Another notable contender is Blast, which has handled over 121 million transactions and reached a peak of 2.72 million daily transactions. Following volatility in Total Value Locked after its token launch, Blast has stabilized and is now a prominent platform supporting various DeFi protocols.

Despite being one of the most active L2 networks early in 2024, Linea saw a drop in user interaction later in the year, partly due to a concentration of transactions related to decentralized mail and anti-fraud measures.

Bitcoin Layer 2 Developments

The report further explores the expanding role of Layer 2 solutions within the Bitcoin ecosystem. In 2024, more than 25 Layer 2 solutions and sidechains for Bitcoin were introduced, enhancing scalability, programmability, and security for decentralized applications (dApps), DeFi, and tokenization. These L2 innovations are crucial for developing permissionless applications on Bitcoin that can maintain the same security assurances found in Bitcoin’s underlying layer.

Technologies such as State Channels, Sidechains, and Rollups are foundational to the development of Bitcoin’s Layer 2 ecosystem. These technologies promote quicker, more effective transactions and facilitate decentralized applications by alleviating some of the load from Bitcoin’s primary chain. A standout initiative is Bitlayer, which aids in Ethereum smart contract migration to Bitcoin while enabling cross-chain transactions.

Other significant advancements include:

Rootstock has processed upwards of 13 million transactions and supports more than 25 decentralized applications. Its integration with Ethereum boosts interoperability and the capability to develop across various chains.

Stacks has undergone a significant network upgrade, boosting transaction throughput by 120 times and shortening confirmation intervals. Additionally, it is set to unveil a new programmable Bitcoin asset known as sBTC, which will allow for decentralized Bitcoin transfers on the Stacks network.

The Future of Layer 2 Solutions

Cryptomeria Capital’s report offers profound insights into the swift advancement and ongoing challenges within the Layer 2 ecosystem. Both Ethereum and Bitcoin-based Layer 2 solutions play a pivotal role in scaling blockchain networks and enhancing user experiences.

With fierce competition among L2 projects, not all solutions are destined for success in the long haul. Ongoing innovation, usability enhancements, and engagement from developers remain essential for the next growth stage in the Layer 2 domain. These platforms are positioned to shape the future of blockchain technology, delivering scalable and efficient solutions for Ethereum and Bitcoin.