TVL of the entire Layer 2 ecosystem “plunge,” bottom in 2022

TVL – The total lock-in value in the Layer 2 protocols on Ethereum (ETH) has plummeted over the past two months, reaching its bottom level in 2022.

In the past month or so, Layer 2 (L2) has been seen as the primary “ray of hope” that can bring the market some positive changes after a long series of days of the recession because TVL on Layer 2 protocols unexpectedly surpassed $7.2 billion in April, the highest peak in history that the sector has ever established.

However, in the face of Boba Network’s efforts to raise $45 million, GameStop embarked on the NFT market with Loopring, an impressive stage offering through the issuance of Optimism tokens as well as a fund of 231 million OP tokens to develop the ecosystem from the platform as well as not enough “traction” to help Layer 2 maintain its stable state.

By the time of the article, the TVL of all Layer 2 platforms on Ethereum had fallen to an annual low of about $4.4 billion, respectively. According to seasoned analyst Patrick Hansen, investment adviser at Presight Capital, the last time this value was so low was in mid-October 2021.

Why is Layer 2 falling so strongly?

To see the actual picture of what has pushed TVL of Layer 2 so low, we need to look at the correlation between L2 and Ethereum. Ethereum and Layer 2 can be compared to Greek mythology’s legendary Achilles heel figure.

The problem of gas fees and transaction speed as slow as Ether’s turtle is now firmly encapsulated by the L2 solution. Layer 2 can process more transactions, reduce costs, and have a faster transaction confirmation speed. According to a16z investment fund’s recent report, the support from L2 is quite significant when aggregated throughout the application process. So far, scaling solutions have contributed about 1.5% of the savings made on ETH.

Of course, the story of why TVL L2 set up its campaign in April amid the flaming red market largely depends on the belief that Proof-of-Stake (PoS) consolidation was on schedule from Ethereum through testnet Kiln in mid-March and the successful launch of “Shadow fork” at the time.

However, until the middle of last week, Ethereum 2.0’s “heart” Beacon Chain had a serious technical problem, combined with the Ropsten testnet of the “The Merge” route also being “harassed,” making the community reluctant to worry that the consolidation journey would continue to be delayed for a long time, although the Ethereum development team has announced that The Merge would take place in August 2022.

This accidentally pushes ETH prices further down, affecting the entire L2 ecosystem. It can be understood simply with the illustration mentioned above when the whole Achilles body gradually weakens, the “shield” covering the hero’s heel is also meaningless.

Ethereum’s DeFi platforms, on the other hand, are also heavily degraded by the ongoing general layout, especially coming from the “massacre” called LUNA-UST. The cash flow from DeFi is drawn continuously, proving that users are no longer too salty to participate in the sector, using L2 to optimize transactions in DeFi and considering this as a potential investment tool, thereby causing TVL L2 to fall.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

Join CoinCu Telegram to keep track of news: https://t.me/coincunews

Follow CoinCu Youtube Channel | Follow CoinCu Facebook page

CoinCu News

KAI