Ethereum L2s to Reach $1T Market Cap in Six Years

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Analysts from investment manager Van Eck have predicted that the Ethereum layer 2 scaling networks will soar to a staggering $1 trillion in market capitalization within the next six years, comprising thousands of use-case-specific chains.

In an April 3 report, senior digital assets investment analyst Patrick Bush and digital assets research head Matthew Sigel highlighted layer-2 blockchains’ potential to address Ethereum’s primary challenge: its limited capacity to process, store, and compute data.

As reported earlier by TheCoinRise, cryptocurrency asset management firm Bitwise is contemplating the launch of an exchange-traded product (ETP) that would encompass Ethereum’s diverse layer 2 networks and applications, signaling broader interest from the industry.

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Ethereum to Secure 60% Market Share

The analysts arrived at their $1 trillion market cap projection by estimating that Ethereum would secure 60% of the market share across all public blockchains, factoring in the anticipated volume of assets within the Ethereum ecosystem.

Present Day Scenario

Presently, there are 46 Ethereum layer 2 solutions, collectively locking in $39 billion in value, with Arbirtum leading the pack at $18 billion, according to L2BEAT.

“Ethereum’s dominance in smart contracts faces a critical hurdle: scalability,” noted the analysts. While Ethereum boasts unparalleled security and decentralization, transaction fees and processing times escalate during periods of heightened usage.

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To address scalability concerns, Ethereum’s development is now prioritizing enhancements to process layer-2 transaction data. The recent Dencun update, which introduced the specialized data-saving feature “Blobs,” helped reduce layer 2 transaction fees.

Significant Revenue Potential

The analysts foresee significant revenue potential on Ethereum layer 2 solutions surpassing that of the base Ethereum network due to superior transaction throughput and user experience.

However, amidst cutthroat competition, Bush and Sigel expressed bearish sentiments regarding the long-term value of the majority of layer 2-related tokens. They highlighted that the top seven Ethereum layer 2 tokens already command a fully diluted valuation of $40 billion, with expectations for this to swell to $100 billion as numerous strong projects launch over the next 18 months.

Ethereum L2 Networks to Witness Significant Adoption

Looking ahead, the analysts envisage a landscape of thousands of use-specific layer 2 networks, with only a few major players dominating the general-purpose market. These networks will be segmented by sector, application, or function, with some chains tailored for specific purposes, such as decentralized social media.

Furthermore, the analysts emphasized the shift towards the zero-knowledge framework (ZKU) for most roll-ups due to its myriad advantages.

As Ethereum’s layer 2 ecosystem evolves and diversifies, it presents both opportunities and challenges for investors and developers navigating this burgeoning space.

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