Key Points
- The total value deposited in Ethereum’s layer-2 chains has exceeded $25 billion.
- The surge in deposits is likely due to anticipation of the Dencun upgrade.
The amount of value deposited in Ethereum‘s (ETH) layer-2 chains has surpassed $25 billion.
This increase in demand is likely a result of the expected Dencun upgrade.
Scaling Solutions Boost Ethereum Ecosystem
Over the past year, scaling solutions have significantly contributed to the demand for the Ethereum ecosystem.
These layer-2 chains are built on Ethereum’s base layer and were designed to solve Ethereum’s scalability issue.
The plan was for these chains to handle most low-value transactions, while the base layer would ensure security and decentralization.
Jump in Assets Bridged to Layer-2 Chains
According to Token Terminal, an on-chain analytics firm, the number of assets bridged from Ethereum to layer-2 chains has significantly increased in the first quarter of 2024.
Bridging is the process of transferring funds from layer-1 to layer-2 to benefit from the high-speed and low-cost capabilities of layer-2 chains.
The total value deposited exceeded $25 billion as of March 16, 2024, a five-fold increase from the same period last year.
Arbitrum attracted 42% of the total deposits, followed by OP Mainnet.
The rise in demand in 2024 was likely due to the anticipated Dencun upgrade, which was implemented last week.
After the upgrade, gas fees on layer-2 chains drastically decreased, by up to 90% on some chains, leading users to transfer their funds to benefit from lower costs.
The increase in demand also caused a spike in on-chain activity, with layer-2 chains settling more than eight times the transactions.
Layer-2 chains batch the transactions after validation and send a compressed version to the base layer for settlement.
For each transaction sent by a layer-2 chain, the Ethereum network burns a small percentage of the total ETH supply, meaning high network activity on Ethereum layer-2 chains directly adds value to ETH.
At the time of writing, ETH was trading at $3,570, a decrease of 4.56% in the last 24 hours, according to CoinMarketCap.
