Vitalik's Layer 2 Reckoning: Five Years of Expansion, Finally Becoming the "Abandoned Child"

On February 3, 2026, Vitalik Buterin said something on X.

The shockwaves this statement sent through the Ethereum community were no less significant than those from his 2020 push for the "Rollup-centric" roadmap. In that post, Vitalik candidly admitted: "The original vision of Layer2 as 'Branded Sharding' to solve Ethereum's scalability is no longer valid."

With one sentence, he almost declared the end of Ethereum's dominant narrative of the past five years. The Layer2 camp, once seen as the lifeline and savior of Ethereum, is now facing its greatest crisis of legitimacy since its inception. More direct criticism followed, as Vitalik wrote unsparingly in the post: "If you create an EVM that does 10,000 TPS, but its connection to L1 is through a multisig bridge, you are not scaling Ethereum."

Why has the former lifeline become a burden to be discarded today? This is not merely a shift in technical direction, but a brutal game of power, interests, and ideals. The story begins five years ago.

How Did Layer2 Become Ethereum's Lifeline?

The answer is simple: it was not a technical choice, but a survival strategy. Rewind to 2021, when Ethereum was deeply mired in the quagmire of being a "chain for the rich."

The data doesn't lie: On May 10, 2021, Ethereum's average transaction fee reached a historical peak of $53.16. During the craziest period of the NFT boom, Gas prices once soared above 500 gwei. What does this mean? A simple ERC-20 token transfer could cost tens of dollars, while a token swap on Uniswap could cost as much as $150 or more.

The DeFi Summer of 2020 brought unprecedented prosperity to Ethereum, with Total Value Locked (TVL) skyrocketing from $700 million at the beginning of the year to $15 billion by year-end, a growth of over 2100%. The price of this prosperity was extreme network congestion. By 2021, when the NFT wave hit, the minting and trading of blue-chip projects like Bored Ape Yacht Club worsened the situation, with Gas fees for single NFT transactions often reaching hundreds of dollars. One collector in 2021 was offered over 1000 ETH for a Bored Ape but ultimately gave up due to high Gas fees and complex transaction processes.

Meanwhile, a challenger named Solana emerged. Its data was astonishing: tens of thousands of transactions per second, with fees as low as $0.00025. The Solana community not only mocked Ethereum's performance but directly attacked its bloated and inefficient architecture. The rhetoric of "Ethereum is dead" became rampant, and the community was filled with anxiety.

It was against this backdrop that in October 2020, Vitalik formally proposed a concept in "A Rollup-Centric Ethereum Roadmap": positioning Layer2 as Ethereum's "Branded Sharding." The core of this idea was that Layer2 would process massive transactions off-chain, then bundle and send compressed results back to the mainnet, theoretically achieving infinite scalability while inheriting the security and censorship resistance of the Ethereum mainnet.

At that point, the entire future of the Ethereum ecosystem was almost entirely bet on the success of Layer2. From the Dencun upgrade in March 2024 introducing EIP-4844 (Proto-Danksharding), specifically providing cheaper data availability space for Layer2, to various core developer meetings, everything paved the way for Layer2. After the Dencun upgrade, Layer2 data publishing costs dropped by at least 90%, with Arbitrum's transaction fees plummeting from about $0.37 to $0.012. Ethereum attempted to gradually push L1 into the background, settling as a quiet "settlement layer."

But why hasn't this bet paid off?

Those "Centralized Databases" with $12 Billion Valuations

If Layer2 had truly fulfilled its original vision, it wouldn't be falling out of favor today. But the question is, what exactly did they do wrong?

Vitalik pinpointed the fatal flaw in his article: progress towards decentralization is too slow. The vast majority of Layer2s have still not reached Stage 2—possessing fully decentralized fraud or validity proof systems and allowing users to withdraw assets permissionlessly in emergencies. They are still controlled by centralized sequencers that manage transaction bundling and ordering. In essence, they are closer to centralized databases wearing a blockchain skin.

The conflict between commercial reality and technological ideals is laid bare here. Take Arbitrum as an example. Its development company, Offchain Labs, secured $120 million in a Series B funding round in 2021, valuing the company at $12 billion, with investors including top-tier firms like Lightspeed Venture Partners. Yet, to this day, this behemoth with over $15 billion in locked value and about a 41% share of the Layer2 market remains at Stage 1.

The story of Optimism is equally intriguing. This project, led by Paradigm and Andreessen Horowitz (a16z), completed a $150 million Series B round in March 2022, bringing its total funding to $268.5 million. In April 2024, a16z privately purchased $90 million worth of OP tokens. Yet, despite such substantial capital backing, Optimism also only reached Stage 1.

The rise of Base reveals another dimension of the problem. As a Layer2 launched by Coinbase, Base quickly became a market darling after its mainnet launch in August 2023. By the end of 2025, Base's TVL reached $4.63 billion, capturing 46% of the entire Layer2 market share, surpassing Arbitrum to become the Layer2 with the highest DeFi TVL. However, Base's decentralization is even lower, as it is entirely controlled by Coinbase, making its technical architecture more akin to a centralized sidechain.

Starknet's story is even more ironic. This Layer2 using ZK-Rollup technology, developed by Matter Labs, has raised a total of $458 million, including a $200 million Series C round led by Blockchain Capital and Dragonfly in November 2022. Yet, its token STRK price has shrunk by 98% from its all-time high, with a market cap of about $283 million. According to on-chain data, its daily protocol revenue is insufficient to cover the operational costs of a few servers, and its core nodes remain highly centralized, only reaching Stage 1 by mid-2025.

Some project teams have even privately admitted they may never fully decentralize. In his post, Vitalik cited a case: a project argued they would never decentralize further because "their clients' regulatory requirements demanded they retain ultimate control." This thoroughly angered Vitalik, who bluntly responded:

"This might be the right thing for your clients. But it's clear that if you do this, then you are not 'scaling Ethereum.'"

This remark almost sentences all projects flying the Ethereum L2 flag but refusing to decentralize to death. Ethereum wants a doppelganger that can extend decentralization and security to a broader space, not a group of vassals wearing Ethereum's skin while practicing centralization.

The deeper issue lies in the irreconcilable contradiction between decentralization and commercial interests. A centralized sequencer means project teams can control MEV (Maximal Extractable Value) revenue, respond more flexibly to regulatory demands, and iterate products faster. Full decentralization means relinquishing this control, handing power to the community and validator networks. For projects backed by venture capital and burdened with growth pressure, this is a difficult choice.

If Layer2s truly achieved full decentralization, would they still fall out of favor? The answer might still be yes. Because Ethereum itself has changed.

When the Mainnet is Faster and Cheaper than Sidechains

Why does Ethereum no longer need Layer2 for scaling as much?

As early as February 14, 2025, Vitalik released a key signal. He published an article titled "Even in an L2-heavy Ethereum, there is a case for having a higher L1 Gas limit," explicitly stating that "L1 is scaling." At the time, this sounded more like comfort for mainnet fundamentalists, but in hindsight, it was actually the clarion call for the Ethereum mainnet to begin competing with Layer2 again.

Over the past year, Ethereum L1's scaling speed has far exceeded everyone's expectations. Technological breakthroughs came from multiple dimensions: EIP-4444 reduced historical data storage requirements, stateless client technology made node operation lighter, and most crucially, the continuous increase in the Gas Limit. At the beginning of 2025, Ethereum's Gas Limit was 30 million; by mid-year, it had increased to 36 million, a 20% growth. This was the first significant Gas Limit increase for Ethereum since 2021.

But this was just the beginning. According to Ethereum core developers' plans, 2026 will see two major hard fork upgrades. The Glamsterdam upgrade will introduce perfect parallel processing capability, with the Gas Limit skyrocketing from 60 million to 200 million, an increase of over 3 times. The Heze-Bogota fork will add the FOCIL (Fork-Choice Enforced Inclusion Lists) mechanism, further improving block construction efficiency and censorship resistance.

The Fusaka upgrade completed on December 3, 2025, already allowed the market to witness the power of L1 scaling. After the upgrade, Ethereum's daily transaction volume increased by about 50%, the number of active addresses rose by about 60%, and the 7-day moving average of daily transaction volume reached a historical high of 1.87 million, surpassing the records from the 2021 DeFi peak.

The result is astonishing: Ethereum mainnet transaction fees have dropped to extremely low levels. In January 2026, Ethereum's average transaction fee fell to $0.44, a decrease of over 99% compared to the May 2021 peak of $53.16. During off-peak hours, the cost of a transaction often falls below $0.1, sometimes even as low as $0.01, with Gas prices dropping to 0.119 gwei. This number is already close to Solana's level, and Layer2's biggest cost advantage is being rapidly eroded.

Vitalik did a detailed calculation in that February article. He assumed an ETH price of $2500, a Gas price of 15 gwei (long-term average), and a demand elasticity close to 1 (i.e., doubling the Gas Limit halves the price). Under these assumptions:

Censorship Resistance Demand: Currently, enforcing a transaction censored by an L2 through L1 requires about 120,000 gas, costing $4.5. To reduce the cost below $1, L1 needs to scale 4.5 times.

Cross-L2 Asset Transfer: Currently, withdrawing from one L2 to L1 requires about 250,000 gas, and depositing into another L2 requires 120,000 gas, totaling $13.87. With an ideal optimized design, it would only require 7,500 gas, costing $0.28. To reach the target of $0.05, scaling of 5.5 times is needed.

Mass Exit Scenario: Taking Sony's Soneium as an example, PlayStation has about 116 million monthly active users. Using an efficient exit protocol (7,500 gas per user), the current Ethereum network can just barely support an emergency exit for 121 million users within a week. But to support multiple applications of this scale, L1 needs to scale about 9 times.

And these scaling goals are gradually being realized in 2026. Technological progress has completely changed the game rules. When L1 itself can become fast and cheap, why would users endure the cumbersome cross-chain bridging, complex interaction experiences, and potential security risks of Layer2?

Cross-chain bridge security issues are not unfounded fears. In 2022, cross-chain bridges became a major target for hacker attacks. In February, the Wormhole bridge was hacked for $325 million; in March, the Ronin bridge suffered the largest DeFi attack in history, losing $540 million; and bridge protocols like Meter and Qubit were successively breached. According to Chainalysis statistics, in 2022, the total value of cryptocurrency stolen from cross-chain bridges reached $2 billion, accounting for the majority of all DeFi attack losses that year.

Liquidity fragmentation is another pain point. With the proliferation of Layer2s, DeFi protocol liquidity is scattered across dozens of different chains, leading to increased transaction slippage, reduced capital efficiency, and worsened user experience. For a user to move assets between different Layer2s, they need to go through complex bridging processes, wait for lengthy confirmation times, and bear additional fees and risks.

This leads to the next, and most brutal, question: What should those Layer2 projects that raised huge funds and issued tokens do now?

Valuation Bubbles and Ghost Towns

Where did all the Layer2 money go?

Over the past few years, the Layer2 track has resembled a massive financial game more than a technological revolution. Venture capital firms waved checks, pushing the valuations of L2 projects to staggering heights. zkSync raised a total of $458 million, Arbitrum's Offchain Labs was valued at $12 billion, Optimism raised $268.5 million, and Starknet raised $458 million. Behind these numbers are top-tier VCs like Paradigm, a16z, Lightspeed, and Blockchain Capital.

Developers enthusiastically engaged in "nesting" across different L2s, building complex DeFi legos to attract more liquidity and airdrop hunters. Meanwhile, real users were worn down by cumbersome cross-chain operations and high hidden costs.

A harsh reality is that the market is becoming highly concentrated at the top. According to data from crypto research firm 21Shares, the three major L2s—Base, Arbitrum, and Optimism—already control nearly 90% of the transaction volume. Base, leveraging Coinbase's traffic advantage and user base, experienced explosive growth in 2025, with its TVL skyrocketing from $1 billion at the beginning of the year to $4.63 billion by year-end, achieving a quarterly transaction volume of $59 billion, a 37% increase quarter-over-quarter. Arbitrum follows closely with about $19 billion in TVL, and Optimism trails behind.

But beyond the top players, most L2 projects, after losing the driving force of airdrop expectations, saw their real user numbers quickly plummet to freezing levels, becoming veritable "ghost towns." Starknet is the most typical example. Although its token price has fallen 98% from its high, relative to its extremely low daily active users and fee revenue, its price-to-earnings ratio remains in a highly inflated bubble range. This means there is a huge gap between the market's expectations for its future and its current ability to create real value.

Even more ironically, when Layer2 fees dropped significantly due to EIP-4844, the data availability fees they paid to L1 also plummeted, which in turn reduced Ethereum L1's fee revenue. In January 2026, analysis pointed out that the Dencun upgrade caused a large number of transactions to shift from L1 to cheaper L2s, which was one of the main reasons for Ethereum network fees dropping to their lowest level since 2017. While Layer2s were reducing their own costs, they were also draining the economic value of L1.

21Shares predicted in its 2026 Layer2 Outlook Report that most Ethereum Layer2s may not survive 2026, and the market will undergo a brutal consolidation. Ultimately, only those projects with high performance, true decentralization, and unique value propositions will emerge victorious.

This is precisely the real intention behind Vitalik's recent criticism. He wants to burst this infrastructure self-congratulatory bubble and pour a bucket of cold water on this unhealthy market. If a Layer2 cannot provide more interesting or valuable functions than L1, then it will ultimately become just an expensive transitional product in Ethereum's development history.

Ethereum is Reclaiming Its Sovereignty

Vitalik's latest suggestions point to a new path for Layer2: abandon scalability as the sole selling point and instead explore functional added value that L1 cannot or is unwilling to provide in the short term. He specifically listed several directions: privacy protection (achieving on-chain private transactions via zero-knowledge proof technology), application-specific efficiency optimization (e.g., for gaming, social networks, AI computation), ultra-fast transaction confirmation (millisecond-level rather than second-level), and exploration of non-financial use cases.

In other words, the role of Layer2 will shift from being Ethereum's doppelganger to becoming various functional plugins. They are no longer the only savior for scaling but a functional extension layer within the Ethereum ecosystem. This is a fundamental shift in positioning and a return of power—Ethereum's core value and sovereignty will be re-anchored on L1.

Vitalik also proposed a new framework: view Layer2 as a spectrum, not a binary classification. Different L2s can have different trade-offs in decentralization, security guarantees, and functional characteristics. The key is to clearly communicate to users what guarantees they provide, rather than all claiming to be "scaling Ethereum."

This reckoning has already begun. Those Layer2s sustained by expensive valuations but lacking any real daily activity are facing their final judgment. Those that can find their unique value proposition and truly achieve decentralization may survive in the new landscape. Base may continue to lead by leveraging Coinbase's traffic advantage and Web2 user onboarding capabilities, but it needs to address questions about its insufficient decentralization. Arbitrum and Optimism need to accelerate their progress towards Stage 2 to prove they are more than just centralized databases. ZK-Rollup projects like zkSync and Starknet need to demonstrate the unique value of their zero-knowledge proof technology while significantly improving user experience and ecosystem vibrancy.

Layer2 has not disappeared, but its era as Ethereum's only hope is completely over. Five years ago, when pushed into a corner by competitors like Solana, Ethereum handed the hope of scaling to Layer2 and restructured its entire technical roadmap for it. Five years later, it discovered that the best scaling solution is to make itself stronger.

This is not betrayal, but growth. And those Layer2s unable to