Ethereum L2 development is ‘double-edged sword’ for ETH value

2 months ago

Ethereum’s propulsion toward layer-2 (L2) blockchain scalability whitethorn beryllium a double-edged sword for Ether, perchance weakening the worth accrual of the world’s second-largest cryptocurrency, according to a caller study from Binance Research.

The study suggests that Ethereum’s L2 blockchain networks — built to amended mainnet scalability and little transaction costs — whitethorn beryllium cannibalistic of the Ethereum basal layer, negatively impacting the terms of Ether (ETH).

Ethereum’s dominance successful presumption of decentralized speech (DEX) measurement and fees generated is “under threat” by Solana and BNB Smart Chain, Binance Research wrote.

The main factors see dilatory and costly transactions, fragmented “developer mindshare and liquidity, and reduced worth accrual to the L1 owed to the emergence of L2s,” the study said.

Ethereum’s roadmap already includes aboriginal upgrades aimed astatine creating cheaper transactions, further security, and much future-proof incentives for the mainnet.

Still, Ether’s worth accrual whitethorn proceed to endure successful the adjacent word since the adjacent 2 large upgrades don’t instantly code these issues, but are aimed astatine creating much scalability astir information availability and incorporating much L2 networks.

Concerns person been reignited astir the Ethereum mainnet’s economical incentives since Ether’s terms fell to $1,410 connected April 7, marking its lowest level since March 2023.

Ether’s terms fell implicit 61% during a four-month downtrend, which started connected Dec. 16, 2024, erstwhile ETH concisely peaked supra $4,100, Cointelegraph Markets Pro information shows.

Ethereum’s Pectra, Fusaka upgrade won’t code Ether’s worth accrual

After archetypal delays, Ethereum’s highly anticipated Pectra upgrade is acceptable to spell unrecorded connected the mainnet connected May 7.

The Pectra upgrade aims to amended Ether staking and L2 web scalability, summation blob capableness to alteration much information handling connected the mainnet and amended wide web capacity.

The Fusaka upgrade, expected successful precocious 2025, volition absorption connected scaling the Ethereum mainnet arsenic a information availability furniture by introducing EIP-7594. Fusaka whitethorn besides bring an update to the Ethereum Virtual Machine (EVM), resulting successful a “more structured approach” to smart-contract creation, reducing runtime overhead and improving developer experience.

Ethereum’s committedness to L2 scaling whitethorn beryllium a “double-edged sword” owed to concerns astir the mainnet’s “competitiveness arsenic a information availability layer” and “the sustainability of worth accrual to Ethereum the asset,” the study said.

“One promising way for stronger ETH worth accrual is the improvement of based rollups,” which “contribute importantly much successful fees” to Ethereum compared with L2s similar Base, Arbitrum and Optimism, according to a Binance Research spokesperson.

“Another avenue is Ethereum’s evolving relation arsenic a information availability layer,” the spokesperson told Cointelegraph, adding:

“Value accrual done this exemplary depends connected outer factors: L2s indispensable proceed to take Ethereum for information availability, and blockspace request indispensable turn successful a competitory scenery wherever alternatives similar Solana and BNB Smart Chain are gaining traction.”

“Aligning inducement structures betwixt Ethereum and L2s, whether done interest sharing, MEV capture, oregon protocol-level integrations, volition beryllium indispensable to guarantee sustainable worth travel backmost to ETH arsenic an plus should Ethereum proceed to perpetrate to scaling with L2s,” helium added.