Ethereum Is Making More Money Than Ever From Layer 2 Networks

With Layer 2 networks gaining vital traction in consumer exercise, the fuel charges Ethereum is raking in for renting its safety are breaking document highs.

Ethereum Earnings From Layer 2 Enlargement

Layer 2 networks are spending document quantities of fuel on Ethereum mainnet.

Based on on-chain knowledge from Dune, Layer 2 networks are actually spending extra fuel than ever to settle or show transaction batches on Ethereum’s mainnet, with spending constantly surpassing 10 billion fuel because the starting on Might.

As an illustration, the best quantity of fuel ever used on the Ethereum mainnet to settle Layer 2 community transactions occurred this Wednesday—instantly after Optimism launched its OP governance token late Tuesday. Particularly, all Layer 2 networks mixed spent round 3.95 billion of the overall 100 billion day by day fuel restrict on Ethereum, accounting for about 3.95% of the fuel spent on the community that day. To place the expansion fee into perspective, the overall month-to-month fuel spent by Layer 2 networks on Ethereum in Might 2021 was round 5 billion, whereas in Might this yr, it was roughly 52 billion, marking over a tenfold enhance in absolute fuel utilization phrases.

When Ethereum visitors will increase it accrues worth to all ETH holders. It’s because the bottom fuel charges on Ethereum are burned, decreasing the general ETH provide and thus growing the worth of all remaining tokens. On this means Ethereum “earnings” as Layer 2 networks use its blockspace to settle transactions extra effectively than will be completed immediately on mainnet.

Layer 2 is an umbrella time period for blockchain scaling options that deal with transactions on separate networks then ship them again to Ethereum mainnet for settlement. For instance, Optimism and Aribrum are Layer 2 networks based mostly on a cryptographic expertise often known as Optimistic Rollups that bundle transactions collectively off-chain (on their separate networks) after which settle the bundles in a single transaction on the Ethereum mainnet to cut back its transaction load. 

In contrast to so-called sidechains like Polygon’s Matic blockchain, which have their very own consensus mechanisms, Layer 2 networks take the transactional load off of Ethereum however borrow or inherit its safety by finally settling their batches on mainnet. This results in an fascinating dynamic the place Layer 2 transactions turn out to be more and more cheaper for customers, however mainnet transactions stay sufficiently costly to pay for Ethereum’s appreciable safety expenditure. 

Commenting on the surge in Layer 2 utilization on Twitter right this moment, Polygon co-founder Sandeep Nailwal speculated that over time, Ethereum may evolve from a user-focused to a network-focused chain the place it primarily settles batched Layer 2 community transactions as a substitute of particular person, user-generated mainnet transactions. “As I additionally mentioned earlier than that #Ethereum is transitioning from a B2C(consumer to chain) enterprise mannequin to B2B(chain to chain) mannequin,” he said, including that finally, “majority of the Eth’s fuel can be utilized by L2 chains.”

Disclosure: On the time of writing, the writer of this piece owned ETH and several other different cryptocurrencies.