Ethereum needs Layer 2 blockchains to help address its cost and throughput shortcomings, cryptocurrency exchange Coinbase said in a research note, although these same scaling offerings could squeeze revenue from the network because they become competitive rather than complementary.
Layer 2 could become an application layer that carries a lot of economic activity, while Ethereum is dedicated to storing transaction data, which is feasible, writes David Duong, head of institutional research at Coinbase.
Furthermore, the report claims that the future of Layer 2 could be a zero-sum game, as Layer 2, which houses most dapps, can power the entire Ethereum ecosystem.
Currently, the total value locked (TVL) on Ethereum is around $68.9 billion, while the total value locked in Layer 2 is $5.2 billion.