Ethereum's L2s at Historic Lows: Analyst

The net volume of assets locked in protocols on various second-layer platforms on the top of Ethereum (ETH) plummeted in the last two months. Analysts are guessing about possible reasons for this dramatic decrease.

Since early April, Ethereum L2s are down by 40%

Seasoned analyst Patrick Hansen, crypto venture advisor at the Presight Capital VC fund, has taken to Twitter to share the bearish dynamics of Ethereum-based second-layer platforms.

Ethereum L2s currently have a hard time living up to the high expectations - remember the L222 meme?

The reality is L2 TVL is at its lowest this year, in spite of massive liquidity incentives & token farming efforts. pic.twitter.com/YQkxIfL5Ko

— Patrick Hansen (@paddi_hansen) May 29, 2022

He noticed that total value locked (net value of assets injected in various protocols) of Ethereum's L2s declined to yearly lows. Actually, they dropped to $4.4 billion in equivalent. The last time this value was so low was in mid-October 2021.

L2s started losing steam in early April: their TVL dropped by 40% since. Mr. Hansen stressed that this decline took place despite massive liquidity incentives and token farming programs.

As such, we can be sure that it was too early to talk about L2 breakthrough, Mr. Hansen admits:

But Ethereum L2 breakthrough this year was considered a certainty by Ethereum-Maxis. For now, this couldn't be further from reality, even before the crashes in the recent weeks. L2 usage is limited at best.

Questions to be answered

At the same time, to see the actual picture of what pushes L2s' TVL down, we need to consider the correlation between L2s and L1s, the power of incentivization programs and the roles of different factors in these dynamics, Mr. Hansen concludes.

Ethereum's DeFis are also heavily affected by the ongoing market recession. As per data displayed by DeFiLlama aggregator, DeFis have lost 40% of TVL in just 30 days.

Now, the net volume of assets locked in DeFis is sitting at $67.92 billion, down almost $100 billion from the historic maximum registered in November 2021.