Under Ethereum Fud, a detailed explanation of the opportunities and development path of Layer 2

The recent Fud about $ETH is nothing more than three types:

1) Ethereum’s current income is far less than the previous bull market (mainly due to the popularity of Layer2), but the price is close to a new high;

2) The market has emerged with a more competitive (more wealth effect) Layer 1 ecosystem Solana;

3) After the Cancun upgrade, Ethereum’s Layer 2 fee income is expected to be significantly reduced.

From these Fud, we can see that the market is not optimistic/short about Ethereum. The main point is the weakening of Ethereum’s revenue by Layer2 and Solana, and Ethereum is also further eroding Ethereum’s revenue with the Cancun upgrade. From a revenue perspective alone, Ethereum's prospects are indeed worrying, and Layer 2 needs a very large increase to push the revenue of Layer 2 Ethereum back to the "normal level" of the last bull market.

But from the perspective of ecological influence, Layer2 still has a large room for growth after its upgrade in Cancun.

In VanEck’s research report on Ethereum Layer2, it was mentioned that the market value of Ethereum Layer2 will reach US$1 trillion in 2030. The report highlights the important role of Ethereum Layer2 in expanding the Ethereum network, improving developer experience, user experience, technical capabilities, etc.

V God also mentioned at the ETH Taipei 2024 conference that Ethereum core developers had hoped that the Layer 2 network would use an average of three blobs per block, but the current level is about 67% lower than that goal.

The translation is that Layer 2 can be expected in the future, but the current Layer 2 traffic of the entire Ethereum is not as good as expected. Obviously, what Ethereum core developers, including research institutions, focus on is not Ethereum’s revenue, but the number of users and developers that the Ethereum Layer 2 network can capture. After all, users and developers are the cornerstone of network development. After all, a sufficient number of interactions can drive the growth of Layer2 revenue. Now, Ethereum Layer 2 has huge room for growth.

In the Layer2 project, there are two examples worth talking about. One is BaseChain and the other is Metis. BaseChain and Metis are two completely opposite extremes. The basic logic of Layer 2 such as Base and Metis is to use the EIP-4844 upgrade (Cancun upgrade) to achieve higher data processing capabilities and lower costs, and to reduce the burden on Ethereum Layer 1.

BaseChain sorter is dominated by Coinbase, and the income is also counted as Coinbase’s income. Therefore, Coinbase has every reason to promote the development of BaseChain ecology (wealth effect, play style is basically the same as Solana). After all, for Coinbase, BaseChain This part of the future revenue space is large enough. Especially after the upgrade in Cancun, the cost becomes lower and the revenue space of BaseChain sorter will become high enough.

The other one is Metis.

Metis reduces dependence on the Ethereum main network by adopting optimized data processing and smart contract execution mechanisms, reducing transaction costs and shortening confirmation times. In particular, Metis is designed to support multiple revenue models and cost structures, including but not limited to generating revenue through transaction fees, data compression, and smart contract execution. In addition, Metis also does a good job in user experience - in terms of quick access to assets and transaction confirmation.

The most important point is that Metis is taking the path of a decentralized sorter. That is to say, the official does not make money from the sorter. Instead, it divides the cake and builds a flywheel through ecological incentives. . My point of view is that Metis's approach has given other Layer 2 a guiding idea - if you want to expand the ecosystem and capture developers and users, you must divide the cake and let everyone eat together - unless you have a big dad like Coinbase .

In the end, the Layer 2 business will most likely become a very competitive but flourishing situation. The new Layer 2 competes for users and developers, which is essentially a competition for the wealth effect of the chain. The formation of wealth effect relies on two things:

1) There is a big daddy behind the scenes, and the big daddy provides resources and money. Support, BaseChain is a living example, a bit like the last round of BSC;

2) Make your own token flywheel and spend money on the ecosystem, Metis is a typical example.

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