Ethereum Faces Competition as Layer-2 Solutions Rise

Emergence of Layer-2 Solutions

Ethereum's dominance in on-chain activities is being challenged by the rapid rise of layer-2 networks. These solutions have gained traction, accounting for over 60% of Ethereum's activity in the third quarter of 2023. Notably, networks like Coinbase's Base have occasionally surpassed Ethereum Mainnet in transaction volume.

Growth of Layer-2 Networks

Layer-2 networks have experienced significant growth. Optimism, for instance, saw a 40% increase in transactions, reflecting the broader trend of expanding activity in this space. However, this growth has had mixed effects on other networks. While Optimism and Base expanded, Arbitrum experienced a decline in transactions by 36%.

Arbitrum's Continued Dominance

Despite facing competition, Arbitrum remains the leading layer-2 network. It averages 600,000 daily transactions, outpacing both Optimism and Base. Additionally, Arbitrum holds the largest market share in total value locked, with over $5.7 billion in assets, accounting for 54.4% among rollups.

DeFi Protocols and Market Trends

The total value locked in decentralized finance (DeFi) protocols has been decreasing, with current liquidity levels around $37.6 billion. This decline has been ongoing since March 2023, reaching levels not seen since early 2021. These trends indicate shifting dynamics within the Ethereum ecosystem and the broader crypto market.

In summary, the rise of layer-2 solutions is reshaping the landscape of digital transactions, presenting both challenges and opportunities for Ethereum and its network users.