Original title: L2s Are the New Old L1s—And Why ETH's Price Is Stuck.
Original author: Ignas
Original source: x
Compiled by: Mars Finance, Daisy
Has Ethereum won the L1 battle?
Now it is clear that the answer is no. This is also an important reason why the $ETH price is stagnant.
But during the bear market, ETH was the ‘L1 winner’ as a common perception. I learned this lesson myself.
We all knew the bull run was coming, so many people sold their alt-L1 assets and switched to holding two assets that we believed would not disappear: BTC and ETH.
All other L1s should have faded into oblivion for two reasons:
First, alt-L1s compete with yield-seeking speculators on similarly forked protocols like Aave and Uniswap V2 by offering liquidity mining rewards.
At the application layer, there is little innovation except Ethereum.
Avalanche, BNB Chain, Polygon... They are all similar. The only difference between them is:
Lower gas fees
Faster speeds
Branding
How many tokens they can provide as liquidity mining rewards.
Secondly, a new narrative of Ethereum L2 has emerged with the emergence of Optimism, Arbitrum, etc., promising to bring scalability without sacrificing security.
They have performed well even during the bear market, while alt-L1s have continued to lose total value locked (TVL) and users.
Alt-L1 was in big trouble and needed to reinvent itself, which they did.
Solana is the biggest blow to Ethereum’s extreme supporters.
SOL was hit hard by the FTX debacle but not only recovered, it also shattered the illusion that Ethereum’s rollup approach was the only viable scaling solution.
As more L2s are launched, the problem of fragmentation in liquidity and user experience increases. With each L2 launched, Solana’s monolithic architecture becomes more attractive.
The modularity vs monolith debate ends the “Ethereum wins the L1 battle” narrative.
Speculators who hoarded ETH during the bear market are now continuing to sell ETH in exchange for SOL and other L1s.
Other L1s have also innovated and now have a clearer and more diverse vision than they did a few years ago.
• Avalanche: Just launched Avax9000, allowing unlicensed L1 (but not L2) to be enabled for specific application needs.
Compared with Ethereum L2, Avax L1 benefits from unified cross-chain communication. And Avalanche's value accumulation on the main chain is clearer.
Avax's biggest success is the game (Off the Grid), which proves that Avalanche's vision is coming true. It can also revive the once popular GameFi narrative.
• Near: Established itself as a monolithic and modular blockchain. Near also provides chain abstraction services to L2 through a unified user interface (BOS), supports L2 account aggregation, and implements the sharding technology abandoned by Ethereum.
• BNB Chain: opBNB L2 was launched to reduce fees, but the more important upgrade was BNB Greenfield, which focuses on monetization of data and intellectual property (DataFi) and decentralized AI (LLM training with privacy protection).
• Fantom: Further strengthening the monolithic design with the Sonic upgrade, bringing 2000 TPS without sharding or L2. The goal is to attract a new generation of dApps.
• Gnosis: Building financial dApps that I use every day.
L1s that fail to innovate and adapt are struggling.
The most obvious example is Cosmos. Once a pioneer in the modular blockchain narrative, it is now losing users, liquidity, and market attention. $ATOM is now trading back to the levels before the 2020/21 bull run.
However, new L1s like Sui, Sei, and Aptos still benefit from the “new shiny L1” strategy of the past. To thrive in the long term, they need to innovate and differentiate themselves.
Meanwhile, today’s new L2 is similar to the L1 of the past, with near-zero transaction fees and little differentiation other than branding.
They attract forked protocols that were born for airdrops, but lack innovation. As the airdrop craze fades and the total locked value (TVL) decreases, L2 must diversify and attract unique dApps to survive. At the same time, its token economic model is poor.
Those that fail to succeed may be abandoned like some EVM chains in the DeFi summer of 2020.
But I also see some signs of diversification: L2 interoperability alliances (OP Hyperchain, zkSync Elastic Chain, etc.), Base benefiting from Coinbase's support, and zkSync paying millions of dollars to attract unique dApps.
Overall, Ethereum is not the winner of the L1 war. The value accumulation of all L2 is still unclear.
This is a good thing for the industry as a whole.
Even if Ethereum fails, alternative L1s are still building their own futures. They also provide use cases that Ethereum may not be suitable for.
Now is the time for L2 to prove itself.
