Analysts from Van Eck, an investment manager, predict that Ethereum’s layer 2 scaling networks will reach a market capitalization of $1 trillion within six years. These layer-2 blockchains will consist of numerous chains designed for specific use cases. According to Patrick Bush, Senior Digital Assets Investment Analyst at Van Eck, and Matthew Sigel, Head of Digital Assets Research, Ethereum’s main challenge lies in its limited capacity to handle data processing, storage, and computation. To estimate the $1 trillion market cap, Bush and Sigel calculated that Ethereum would capture 60% of the market share among all public blockchains and considered the volume of assets within the Ethereum ecosystem.
Currently, there are 46 Ethereum layer 2 networks with a total locked value of $39 billion, with the largest one being Arbirtum, valued at $18 billion, as reported by L2BEAT. The analysts noted that Ethereum’s dominance in smart contracts faces a significant obstacle: scalability. While the network offers unparalleled security and decentralization, transaction fees and processing times skyrocket when usage increases.
Ethereum’s development efforts are now concentrated on improving its ability to handle transaction data on layer-2 networks. This is evident in the recent Dencun update, which introduced the “Blobs” feature to reduce transaction fees on layer 2. The analysts shared a chart illustrating the data publishing costs per layer 2 network in terms of Ether (ETH), sourced from Van Eck.
Looking ahead, the analysts believe that there is significant potential for generating even more revenue on layer 2 networks compared to the base Ethereum network. However, they expressed caution regarding the long-term value of most layer 2-related tokens due to fierce competition. The top seven Ethereum layer 2 tokens already possess a fully diluted valuation of $40 billion, and with the launch of many promising projects in the next 18 months, that figure is expected to reach $100 billion. The analysts believe it may be challenging for the crypto market to absorb such a supply without substantial discounts.
In their forecast, the analysts envision a future where there are thousands of layer 2 networks tailored for specific use cases. These networks will be segmented by sector, application, or function, with some chains dedicated to decentralized social media, for example, along with their accompanying applications. They predict that only a few major players will dominate the general-purpose layer 2 market, thanks to the network effect that increases the value of these blockchains as user numbers grow. The analysts also emphasized that most roll-ups will eventually adopt the zero-knowledge framework (ZKU) due to its numerous advantages.
In conclusion, the article discusses the analysts’ predictions regarding the growth and potential of Ethereum’s layer 2 scaling networks. They anticipate a trillion-dollar market capitalization within six years, driven by the emergence of thousands of use-specific chains. While recognizing the challenges of scalability and competition, the analysts remain optimistic about the future of layer 2 networks and their impact on the crypto market.