观点：为什么我不那么看好Layer 2了？
Original Title: I Don't Like Layer 2 Anymore
Original Author: Cody Poh, Spartan Capital
Original Translation: Kaori, BlockBeats
Editor's Note: Spartan Capital investment assistant Cody Poh expresses his value judgment on Ethereum Layer 2. He believes that there is a theoretical "glass ceiling" for the valuation of Layer 2, as Ethereum L1 guarantees the security of L2 activities through its consensus mechanism, theoretically limiting the value of L2 not exceeding L1. And some individual Layer 2 may still perform well, but this is more due to special reasons rather than the overall growth of the industry. In addition, he also believes that aggressive token releases and incentives will continue in this cycle until a clear winner emerges in Layer 2 competition.
Last June, when the trading price of Optimism exceeded $5 billion FDV, I expressed optimism on Twitter, stating that the value of this red coin was severely undervalued.
Optimism generated over $40 million in annual fees and has just announced the Superchain vision, where the chains that choose to join this ecosystem will pay Optimism's sequencing fees or profits. In other words, I would be paying around $5 billion for a chain ecosystem that includes Base and OP mainnets.
With the upcoming EIP-4844 upgrade, expected to take place on March 13, 2024; Optimism, as a direct beneficiary, has seen a significant increase in value, with FDV now exceeding $15 billion. Therefore, I believe now is the time to review the original investment thesis, as the main catalyst is taking effect.
The more I think about the incremental rise that Optimism may further gain, the more skeptical I become. Don't get me wrong, I believe that Optimism, along with the OP Stack and the broader Superchain ecosystem, has become an important infrastructure in the Ethereum ecosystem. The $OP token may still perform well in this cycle, but I still have some important questions about Layer 2 as a whole:
There is a theoretical "glass ceiling" for Layer 2 valuation
A simple description of the relationship between Ethereum L1 and L2 is that Ethereum L1 ensures the security of activities on L2. Based on this point, the overall value of L2 should theoretically not exceed Ethereum L1; because Ethereum's consensus mechanism provides authenticity verification for activities happening on L2. It doesn't make sense to use a cheaper chain to protect activities that happen on a more expensive chain; otherwise, why would L2 settle on this underlying layer?
In theory, settlement can take place on any blockchain, including L2 or even L3, depending on the desired features of these blockchains. For a layer 2 solution that chooses to settle on Ethereum L1, it selects the security provided by Ethereum validators through its consensus mechanism. It also leverages the liquidity accumulated on Ethereum and the bridging infrastructure protected by Ethereum's consensus mechanism.
This assumption should hold true unless the "settlement layer as a service" becomes more commoditized in this cycle with the emergence of platforms like Dymension or if other Layer 1 solutions can provide the same feature set as Ethereum L1.
One counter-argument to the "glass ceiling" problem is that if any Layer 2 solution can scale massively in a way that attracts millions of users, it will become a reality. Value will eventually seep into the Ethereum base layer, effectively breaking the aforementioned "glass ceiling". My only doubt about this viewpoint is:
- Given Ethereum's current market valuation of $330 billion, I find it difficult to push Ethereum to certain levels solely relying on native cryptocurrency. Ethereum needs a substantial influx of external capital (e.g., through an ETH ETF) to surpass some of the valuation targets set in this cycle.
- In the fundamental cryptocurrency investor community, the "security demand" or "currency demand" is still a relatively new concept that requires this school of thought to become the overall framework in terms of infrastructure investments.
- Value accumulation from Layer 2 back to Layer 1 is typically diminished by over an order of magnitude. This problem becomes even more pronounced after the implementation of EIP-4844 upgrade, as the cost of feeding data back to Ethereum will actually be reduced by more than 10x. Let alone Layer 2 will batch process multiple transactions, so the cost of processing 10x volume on Ethereum will be more than 10x.
Layer 2 War Is Essentially a Cannibalistic War
Based on the logic above, the collective TVL on Layer 2 is always a subset of the entire TVL on Ethereum, partly because Layer 2 chooses to settle on Ethereum for deep liquidity. When we hold a bullish bias on a single Layer 2 token, we are essentially making the following assumptions:
- ETH TVL will still increase by either 2x or 3x from now, with a more optimistic case assuming it will be 2x current levels;
- ETH TVL is currently over $40 billion, peaked over $100 billion in the previous cycle, and requires each Layer 2's ETH TVL to be three times or four times the previous peak to have enough TVL and conduct transactions worth tens of billions of dollars, providing enough upside potential to make the investment interesting.
· Layer 2 TVL, as a subset of ETH TVL, will continue to grow;
Considering major Layer 2 solutions such as Optimism, Arbitrum, Polygon, as well as newly created layers like Manta and Blast, the total TVL of Layer 2 already accounts for over 20% of the market. By investing in Layer 2, we assume this percentage can increase several folds.
Back in January 2023, when there were only 3 "rollups" in the market, this ratio was around 10%; fast forward to January 2024, with over a dozen general-purpose rollups, the percentage only doubled, meaning the average TVL of each rollup has been decreasing.
· As an extension to the above, Layer 2 solutions that you love, such as Optimism or Arbitrum, somehow manage to accumulate more TVL than those newer and shiny giant farms like Blast or even Manta.
Considering the two structural reasons mentioned above, my bullishness on Layer 2 as an industry has diminished. I believe certain individual Layer 2 solutions may still perform well, but it will be more due to specific reasons rather than overall industry growth that would generalize to all Layer 2 technologies. Two examples that come to mind are:
Optimism - $OP continues to serve as a proxy bet on the entire metaverse ecosystem, with investors betting on Base eventually attracting the next wave of millions of retail users as it sits close to Coinbase, or Farcaster successfully overtaking Twitter and becoming the de facto crypto social app;
Polygon - If it manages to establish partnerships with institutions like Astar in Japan or traditional finance players like Nomura/Brevan Howard, $MATIC or $POL could see parabolic growth, or a zero-knowledge proof-driven aggregator paper that performs exceptionally well and achieves atomic inter-operability across all zkEVMs;
I can hardly imagine that in a universe, just because of excellent business development, a single Layer 2 can defeat all competitors and eventually attract all top-tier local partners in crypto, such as gaming and DeFi protocols. If not, how can we be optimistic and invest in any Layer 2?
Aggressive token unlocking plan
Another important factor to remember is the aggressive release schedule of these new Layer 2s in the next cycle. This is why I am bullish on older tokens like Optimism and Polygon in this case, since they have already gone through the steepest part of the release schedule; of course, in hindsight, this is partly reflected in their relatively compressed valuations.
The monthly aggressive unlocking of $OP tokens has always been a fatal weakness for the token price; but as I mentioned, the incremental selling pressure will gradually weaken relative to the future circulating market value;
The MATIC token has almost completed its distribution by migrating to the POL token, and the future annual inflation rate is only 2%, which is considered reasonable compared to other PoS chains;
On the other hand, some relatively newer Layer 2 tokens will start unlocking in the coming months. Considering the funding scale of these chains and the valuations from their previous seed and private rounds of financing, it is not difficult to imagine that investors will not hesitate to sell in the market.
Currently, only 12.75% of $ARB tokens are in circulation; a large-scale cliff unlocking of over 1 billion tokens will occur on March 15, 2024. Afterwards, over 90 million tokens will be unlocked monthly until 2027;
Looking at how the Starknet team designed the token distribution schedule, it seems that they are eager to dump $STRK on retail users in the market, after years of development (with almost nothing). From the way they designed the token distribution schedule - I am also an e-beggar myself;
Printing money to drive business development
What's even worse is that, in addition to the aggressive unlocking schedule, Layer 2 projects have to continuously distribute their native tokens to incentivize and establish partnerships. After all, the importance of underlying technology is self-evident, and business development has become a key differentiation factor in this competition.
We have witnessed how Polygon has provided funding for $MATIC and established impressive partnerships with companies like Disney, Meta, and Starbucks. However, this has led to a large sell-off of their tokens and explains why the trading price of $MATIC is relatively cheap compared to companies with weaker development efforts in other newly launched Layer 2 businesses.
At the same time, as large farms like Blast or EigenLayer offer better risk returns for staked funds in the ecosystem, we are also starting to see early signs of Optimism and Arbitrum distributing tokens to retain users.
Optimism has completed three rounds of retroactive public product financing and has distributed a total of $40 million worth of OP tokens (equivalent to > $150 million) to projects that build and utilize the OP stack within the ecosystem. Arbitrum has also conducted multiple rounds of short-term incentive plans and distributed over $71 million worth of ARB tokens to projects; they are even considering establishing a $200 million ecosystem fund and long-term incentive plan focused on gaming to further drive user activity.
It can be reasonably assumed that such aggressive incentive measures will only continue throughout this cycle until there is a clear winner in the Layer 2 competition. Before that, I believe that Layer 2, as a category, will generally lag behind in terms of price performance.
