Ethereum
Growing Use of Ethereum Layer 2 Raises Fragmentation Concerns
Activity and total value locked (TVL) on Ethereum Layer 2 increased rapidly in 2024, but some analysts remain cautious about liquidity fragmentation.
Ethereum Layer 2 (L2) metrics have increased throughout 2024, with transactions per second (GST) and total value blocked (TVL) constantly increasing over the last 6 months. However, new Layer 2s are announced regularly and some analysts are concerned about liquidity fragmentation issues.
Cumulative Total Value Locked (TVL) of ETH 2 Layers
The Layer 2 usage peak converged with catalysts such as EIP-4844 and the launch of Blast. After its launch on February 29, Blast is now TVL’s 6th largest channel. In the meantime, the implementation of EIP-4844 has led to a wide increase in block transactions on the other L2s.
Liquidity fragmentation
DeFi Maestro, strategist at Coattook to social media and job, “Everyone starts their own channel. Monitor developments in the DeFi space quite closely as the problem of fragmented liquidity and user attention becomes more serious.
Liquidity fragmentation is a concept in DeFi in which active liquidity is thinly distributed across a variety of chains and protocols. Due to low volume concentration, this can lead to market and protocol inefficiencies.
This is coming from Aave’s back unveiling his vision for Aave Network, a native layer 2 solution for the Aave protocol and its stablecoin GHO.
Layer 2 Effect on Ethereum
Despite the increased usage of layer 2 solutions, ETH has been inflationary over the past 30 days. Ether supply is currently increasing at a rate of 0.51% per year, which would result in a surplus of 612,000 ETH on an annualized basis.
In their current form, Ethereum L2s collect transactional value due to their high usage while inheriting the security of the ETH mainnet. However, the total amount of ETH burned remains significantly lower than if similar activity took place on mainnet.