How will the rapidly growing L2 help promote the global popularity of Ethereum?

Last night, ApeCoin's airdrop collection activity caused the Ethereum Gas fee to rise to 297gwei. Many people felt that there was an atmosphere of returning to the bull market, but after the activity ended, the Ethereum network Gas fee began to quickly fall back to 24gwei. With the sluggish market, we have to admit that there is still a long way to go before the next bull market. According to Etherscan data, the Ethereum network Gas fee has been declining since entering the bear market, and its Gas fee has dropped to 10gwei, the lowest point in more than nine months. Since January, the Ethereum consumed to process transactions has fallen by 94%.

From the above data, we can clearly see that the market demand for Ethereum block space has begun to decrease. Since May last year, with the popularity of NFT and GameFi, as well as the active DeFi in the market, the gas fee on Ethereum has also begun to rise, and many emerging public chains have also begun to compete to launch online to target different market pain points, so that the current Ethereum market share has dropped below 60%.

However, Ethereum developer Ryan Berckmans said: "ETH's total gas fee is 60% lower than the average in 2021, and Layer 2 security costs only account for 1% of the total fee. In a few years, the rapid growth of Layer 2 will bring reliable cash flow to ETH." So in the face of Ethereum's market share being continuously divided, can the growth of Layer 2 really help it regain its original market share? This requires an analysis of the development of Ethereum after the London upgrade.

It’s been nearly half a year since London’s upgrade. How is the user experience?

We know that the Ethereum London upgrade is not to solve scalability, but to change the fee structure, dividing the original fee into a base fee and a priority fee. Miners can only get the priority fee because the base fee will be destroyed. After that, the Gas price will also increase or decrease according to the utilization of the previous block, thereby reducing the waste caused by paying too much Gas.

Source: Footprint Analytics

From the above chart, we can see that in the past six months, the average gas fee price and base fee price of Ethereum have not shown any obvious trend changes. In terms of transaction methods, more users have begun to choose the EIP-1559 transaction method. According to Footprint Analytics, in the past six months, the proportion of users who choose EIP-1559 in terms of transaction methods has increased from less than 50% to nearly 80%. This also means that after the London upgrade, EIP-1559 has helped more users save gas fees.

Source: Footprint Analytics

In addition, the upgrade of Ethereum in London also greatly promoted the development of Layer 2 expansion and Ethereum 2.0. Based on the continuous development of the crypto market, people's transaction demand on the chain will increase greatly in the future. Under such rapid growth, the shortage of supply will also drive up the gas fee. This has also become an important reason for the rapid development of Layer 2 expansion.

How does the rapid growth of Layer 2 drive the value of Ethereum?

To understand how Layer 2 boosts the value of ETH, we must first understand what changes Layer 2 has made to Ethereum.

Compared with Layer 1 chains that use proof of validity/ZK (zero knowledge), Layer 2 chains that use ZK-Rollups are clearly more advantageous. ZK-Rollup inherits ZK's highest security, sustainability, and liquidity properties, while also having greater flexibility to focus on building the best execution layer.

In addition, all Rollups are fully composable and have a higher potential for scalability than Layer 1 chains, so Rollups are less fragmented. At the same time, the bridges between Rollups are very secure. Through Danksharding, a new sharding design, ZK-Rollups will be able to operate synchronously with Layer 1.

But while we appreciate the benefits of Layer 2, it is undeniable that it has some risks.

Ethereum researcher Polynya once said in an interview that many Rollup networks currently have multi-sig upgradability. Multi-signatures can conspire to steal funds in Rollups. More likely, regulators will order enough multi-signature signatories to shut down a Rollup. In addition, most Rollups now have centralized sequencers, so the biggest risk may be the downtime of the sequencer, during which transactions may be very difficult, expensive, or impossible. However, these risks will eventually become less of an obstacle as technology develops.

According to Etherscan data, the total gas fee of Ethereum at the current price range is 60% lower than the average in 2021, although a large part of this data is due to the current bear market. Among them, the security cost of Layer 2 accounts for only 1% of the total gas fee of Ethereum, which means that as Layer 2 continues to grow at an accelerated rate, the cost for users to choose Ethereum remains low. This shows that for billions of end users, Layer 2 is truly cheap.

As users continue to choose Layer 2, Ethereum's asset network from Layer 1 to Layer 2 and the trustless bridge between Layer 2 will continue to promote Ethereum's network effect. At the same time, individual Layer 2 is expected to develop its own Layer 2 network effect, supporting the valuation of Layer 2 native tokens. In other words, Ethereum will gain a general market share and bring reliable cash flow through the rapid growth of Layer 2 in the next few years.

Are Layer 2 Tokens Killing ETH’s Rally?

As the rapid and stable development of Layer 2 gradually began to gain public recognition, a voice calling for the launch of its own native token to match ETH began to appear in the community. Discussions also began about whether Layer 2 tokens would replace ETH or even surpass BTC.

From a network perspective, Layer 2 has its own network effects, while ETH has network effects from the asset network, but the two are ultimately tied together and have a very positive relationship.

There is a positive correlation between Layer 2 tokens and ETH. Layer 2 tokens can maintain premiums such as Layer 2 network effects, and pay fees to ETH from this premium. It is a win-win relationship for both parties. Of course, some people say that Layer 2 will not pay huge fees to ETH in the end, but only pay a low ETH settlement fee for a small amount of batch Gas. Of course, this statement is wrong.

When Layer 2 is built on Ethereum, Layer 2 has access to decentralized bridges for applications, tokens, and liquidity between Layer 1 and Layer 2. As Ethereum grows, these bridges accumulate into a network of assets where any Layer 2 can be trusted and programmable.

In short, the good ecological development of Layer 2 will greatly promote the development of Ethereum to global popularity and bring considerable value to Layer 2 tokens and ETH. As for whether a new Layer 2 token will be launched in the future to match ETH or become an Ethereum killer? This is unlikely.