Ethereum (ETH): Layer 2 solutions record interaction costs in May

Around 10,000 ETH, or the equivalent of more than $18 million, was spent by Layer 2 solutions such as Arbitrum in May to document their transactions on Ethereum’s mainnet. This is a record high.

Ethereum (ETH) is the undisputed number one cryptocurrency as a Decentralized Finance (DeFi) network, and that has consequences. Because Ethereum’s network is often hit with more requests and transactions than it can handle in real time, so-called Layer 2 solutions are on the rise. Here, transactions are first processed in the network of Layer 2 projects such as Arbitrum (ARB) or Optimism (OP) and later documented bundled in the Ethereum blockchain. In the process, fees of a good 10,000 ETH accumulated in May, according to blockchain data. The equivalent of nearly $19 million in fees flowing from Layer 2 solutions to Ethereum this month marks a record high.

What’s interesting for investors here, in addition to the absolute numbers, is a shift in market share among Layer 2 solutions. This is because for the first time in a year, Optimism (OP) is now only the #3 payer and no longer in one of the top two spots. Arbitrum (ARB) has remitted the most fees with around 4,500 ETH, zkSync follows with just over 2,300 ETH. Taken together, around five times as many fees have been collected from Layer 2 solutions in May 2023 than in January, and there is no end in sight. As reasons for the record costs are high fees at Ethereum itself as well as growing attractiveness of Arbitrum, Optimism, zkSync and other Layer 2 solutions.

This trend is also exciting for Ethereum itself: This is because past upgrades have attempted to make transaction costs predictable on ETH and turn Ethereum into a deflationary cryptocurrency. Here, data from Ultra Sound Money shows: At around -0.50 percent, deflation is currently being achieved in ETH, and fees transferred from Layer 2 solutions are a weighty contributor to this.

Conclusion: Layer 2 solutions successful with Ethereum

It could still take years before Ethereum will significantly increase its own network capacities through targeted sharding. Therefore, there seems to be no way around Layer 2 solutions for Ethereum for the time being. Arbitrum, which will only launch its own token ARB in March, has overtaken Optimism in importance here, at least for the time being, and occupies almost 50 percent of the market.

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