Report: Ethereum Validators May Control the Future of Layer 2 Networks

• Layer 2 solutions are crucial for scaling Ethereum as mainstream apps seek more control over their tech and economics.
• Ethereum L1 validators may hold significant power as Layer 2 networks decentralize under market and regulatory pressures.

Providing the framework required for decentralized apps (dApps) and smart contracts, Ethereum’s Layer 1 (L1) network has become a pillar of the blockchain space. Data from Token Terminal indicates that Ethereum L1 bulls feel that no one blockchain can expand sufficiently to satisfy the worldwide need for on-chain transactions.

This has resulted in an increasing conviction that for most uses, Layer 2 (L2) roll-ups are the future. This view makes perfect sense: as crypto apps get more popular, they will search for more control over their economics and technology.

For many, L2 solutions—which seek to expand Ethereum by managing transactions off-chain yet still gain from Ethereum’s security—app seem as the path forward.

what ethereum L1 (ETH) bulls believe in:

no 1 chain can scale to meet the global demand that exists to transact onchain

crypto apps that reach the mainstream will want more control over their tech & economics

as a result, L2 rollups are the way to go for most apps

however,… pic.twitter.com/HRHCZmuCsV

— Token Terminal (@tokenterminal) October 22, 2024

Decentralization Dilemma: Build or Buy from Ethereum Validators? 

The present generation of L2 roll-ups is still in their “honeymoon phase,” nonetheless. Neither the market nor the government have put great pressure on them to completely decentralize. These L2s will have to choose whether to buy or create their own decentralization when that pressure surely arrives.

Constructing a decentralized system—especially one that exceeds Ethereum’s L1’s resilience—is an expensive and time-consuming endeavor. Over a decade of development has gone into Ethereum, creating a decentralized and strong validator set; this process is still under progress.

Most L2s will thus probably choose to purchase decentralization from a subset of Ethereum’s L1 validators. These validators, who have been instrumental in preserving Ethereum network integrity, might have great price power in these discussions.

L1 validators will surely become increasingly important in the decentralization process for L2s as Ethereum develops and its core developers make advances and carry out fresh suggestions.

One possible development to keep an eye on is the application of an EIP-1559-style burn mechanism to the fees gathered by these L1 validators, therefore augmenting their position.

Arbitrum has kept its advantage in the Layer 2 front, but a rising challenger exists there. As CNF previously reported, Coinbase’s Base has quickly acquired popularity in terms of Total Value Locked (TVL) and user interaction.

Arbitrum is still a major player, but Base has exceeded it in daily transaction volume—especially in micropayments and meme token trading. This increase in activity on Base signals to growing user adoption, which might upset the present L2 hierarchy as more people swarm to the platform for its quick and cheap transactions.

Meanwhile, as of writing, ETH is swapped hands about $2,528.49, down 2.16% over the last 24 hours and 2.91% over the last 7 days.