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Layer 2 Networks: A Deep Dive into 2023's Progress and Challenges

As 2023 draws to a close, the Layer 2 (L2) sector in crypto displays mixed signals. Despite substantial growth in user engagement, L2 tokens have not mirrored this rise.

The Ethereum L2 network stands out, with over 800,000 daily active users, a testament to growing interest and adoption.

Layer 2 solutions are becoming increasingly popular for their faster transaction speeds and lower fees. This trend hints at a potential expansion of the sector and a flourishing ecosystem.

New players are entering the scene, challenging established protocols.

On-Chain Insights🔍 (@LeonWaidmann) December 4, 2023

L2 Networks Gaining Momentum

zkSync Era leads the pack in daily activity and transaction numbers. Arbitrum, however, outperforms in transaction volume and closely matches zkSync in activity.

In contrast, Optimism and Base struggle to maintain consistent user engagement levels.

Implications of the Key Data Points

Assessing activity across different L2 chains is key to understanding user behaviour and each solution's efficiency. Artemis' chart from AMBCrypto sheds light on the L2 world.

Arbitrum tops in the DeFi sector, boasting the highest Total Value Locked (TVL). Optimism follows, with Base and zkSync trailing despite high network activity.

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Image: Artemis

TVL's high levels on an L2 chain signal robust asset utilisation and storage, reflecting trust and adoption.

A disparity between user activity and TVL can indicate limited asset commitment, possibly due to the nature of transactions on the chain.

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Image: Artemis

Base, being a newer network, is still growing its user base and TVL. Notably, it has already overtaken zkSync in TVL. With Coinbase's backing, Base's future looks promising.

What's the Performance of the Tokens?

Of the L2 solutions discussed, only Optimism and Arbitrum have their own tokens. Despite Arbitrum's dominance in several areas, Optimism boasts a larger market cap and better network growth.

This raises questions about the correlation between protocol performance and token growth, offering a potential opportunity for traders.

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Image: Santiment

* Original content written by Coinlive. Coinbold is licensed to distribute this content by Coinlive.