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Global fund manager VanECK has high hopes for ethereum Layer 2 (L2) networks, predicting they could be valued at over $1 trillion by 2030.
Despite his ambitious goals for L2, VanECK said he remains “generally bearish” on the long-term prospects for some of these networks. He ethereum-layer-2s-valuation-prediction-by-2030/” target=”_blank” rel=”noopener”>report evaluated 46 L2 networks in five key areas and predicted that “thousands” more networks would soon emerge.
“At its core, ethereum's main challenge is its limited ability to process, store and calculate data in the form of financial transactions. “This data performance bottleneck is being addressed by offloading much of the data processing and computation to Layer 2 blockchains,” VanECK analysts wrote in the report.
Analysts estimated that ethereum has the potential to take 60% of the market share across all public blockchains. In such a scenario, when estimating the volume of assets within the ethereum ecosystem, analysts predicted a market capitalization of $1 trillion for L2 networks alone.
“ethereum's dominance in smart contracts faces a critical hurdle: scalability. While the network offers unparalleled security and decentralization, transaction fees and processing times skyrocket when usage intensifies,” the analysts continued.
The report indicated that development on ethereum is currently biased towards improving the network's ability to process L2 transaction data, highlighting the recent Dencun upgrade. The latest soft fork of the ethereum mainnet reduced L2 transaction fees by using a specialized data saving feature called “Blobs.”
As such, the analysts concluded that L2 networks are likely to generate “substantially more” revenue than the main network. They believe that ethereum's base network cannot “match” the transaction efficiency and user experience of second-layer networks.
However, analysts were pessimistic about the long-term prospects of most of these L2 networks.
“We see fierce competition between L2s where the network effect is the only moat. As a result, we are generally bearish on the long-term value prospects for most L2 tokens,” they wrote.
They added that only the seven major L2 networks are responsible for a huge $40 billion in total locked value. This metric is expected to rise to $100 billion as several notable projects are about to launch in the next 18 months.
The analysts also envisioned a future dominated by “thousands of use-case-specific Layer 2 (L2) solutions, with “only a few major players” in the overall market. They also expect a “handful of general-purpose chains” to gain prominence due to the network effect that improves their value as more users join.
Furthermore, they highlighted the shift towards the zero-knowledge (ZKU) framework, which they say is inevitable for most roll-ups due to “its many advantages”, marking a fundamental evolution in the L2 ecosystem.
The fund manager's prediction comes as he awaits a decision from the SEC regarding his ethereum ETF filing.
