How Ethereum Layer 2s have outperformed Layer 1s

• Ethereum Layer-2s have proven to be a solid line of defense against Layer-1s.
• Ethereum’s TVL outperformed Solana and Avalanche and could be gunning for market cap too.

The 2021 bull run exposed some major drawbacks in the Ethereum [ETH] blockchain. Thanks to this, the term “Ethereum killer” gained traction as a way to describe the many competitive layers aiming for the top spot by attempting to overthrow the network’s dominance.

How much are 1,10,100 ETHs worth today?

Fast-forward to the present, and Ethereum is still the most dominant PoS blockchain in some key areas. Layer Blockchains like Solana [SOL] and Avalanche [AVAX] have thus failed to dethrone Ethereum.

The latter’s secret weapon is arguably its Layer-2 networks, which have allowed it to overcome the previously-existing scalability limitations.

A recent Grayscale analysis revealed that Optimism [OP], Base, and Arbitrum [ARB], three Ethereum Layer-2s, have surpassed Avalanche and Solana in TVL.

This is because Ethereum is already miles ahead of its competition in terms of adoption and the dApps that operate on its network.

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🧵Following a period of strong growth, top performing Layer 2s #Arbitrum, #Optimism and #BASE are surpassing Ethereum competitor Layer 1s like Solana and Avalanche in terms of total value locked (TVL) as of 9/25.
Here’s why that’s important. (1/6) pic.twitter.com/DpTJyLQ5Nj

— Grayscale (@Grayscale) September 29, 2023

Layer-2 networks successfully assist Ethereum in bypassing its previous limitations. The L2s facilitate transaction processing, allowing the dApps to operate efficiently and cost effectively. There is one key component that has allowed Layer-2 networks to surpass some Layer-1 blockchains.

While the latter have to build up their own dApps and clientele, Layer-2s benefit from Ethereum’s already existing dApps, of which there are plenty. On top of that, the same Layer-2s are also able to attract dApps on their own.

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Layer 2 blockchains process transactions from dApps and then “batch” them together before sending a compressed version back to the main network for settlement, acting as a side road or even a dedicated bus lane augmenting a major highway. (2/6)

— Grayscale (@Grayscale) September 29, 2023

Can Ethereum Layer-2s secure market cap dominance?

These observations confirmed that Ethereum was still able to command robust utility and demand at press time. But while its Layer-2 networks enjoyed robust TVL growth, they were still lagging behind Solana and Avalanche in terms of market cap.

According to the latest data, Solana’s market cap was slightly over $8.8 billion, while Avalanche had a market cap of $3.27 billion at the time of writing. The closest of the aforementioned Layer-1s was Arbitrum at $1.17 billion, followed by Optimism at $1.06 billion.

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Base had the lowest market cap among them, at $530 million.

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It makes sense that the Layer-2s would have lower market caps, considering that their counterparts are Layer-1 networks that have been around for longer. Nevertheless, the Layer-2 market caps highlighted their rapid growth.

Judging by these factors, it is possible that they will get closer to Solana and Avalanche. These numbers also highlight the fact that it is now more difficult to beat Ethereum than ever before.