Ethereum has reached a special record and we are not talking about the price. This is the capital ‘locked up’ in Layer 2 blockchain solutions, which has reached a new maximum of $21 billion. This number represents an increase of 333 percent since the beginning of January 2023.
Market leader Arbitrum One has approximately 50% of the market with a capital of $10 billion, followed by Optimism with $5.8 billion and a market share of 28.7%.
What is a Tier 2 solution?
A Layer 2 solution is essentially a blockchain that works alongside Ethereum and takes the pressure off the main blockchain. This means that users carry out transactions within another blockchain, which in certain cases will also later be “transferred” to Ethereum.
Perhaps you could compare these constructions with the Dutch WieBetaaltWat. In this app you can keep track of who paid for what for groups of people and you only have to pay each other later.
Because transactions on Ethereum itself can be expensive, it is attractive to use Layer 2 solutions, but it can also be interesting for the speed.
However, keep in mind that there are often trade-offs when it comes to decentralization, which can make it less attractive for true purists to adopt these types of solutions.
Tier 2 solutions are popular
The popularity of this type of new technology is evident from the large amounts of capital that people invest in it.
The graph above shows the growth of these solutions over the past year. So you see that after all these years there are still many interesting developments in the industry.
What’s surprising is that these Layer 2 solutions grew 333 percent in 2023, while DeFi markets only saw a 38 percent increase over the same period.
Especially when you consider that the price of Ethereum has risen by more than 38%. You would almost think that DeFi is no longer interesting for the general public.
Source: BTC Direct
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Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
