Ethereum co-founder Joe Lubin recently spoke at the Digital Asset Summit (DAS), emphasizing the mainnet's maturity and security. He believes these advancements give developers more freedom to innovate directly on Layer 1 (L1) and expressed strong optimism about the future growth of various Layer 2 (L2) scaling solutions. However, the market's reaction tells a different story.
Following the Dencun upgrade, Ethereum's on-chain revenue has significantly decreased, contributing to a decline in ETH's price. Moreover, Ethereum ETFs have experienced 11 consecutive days of net outflows, including a single-day withdrawal of $73.6 million. This trend highlights growing market concerns about the immediate value proposition of L2 solutions.
Lubin's Vision: L2 as the Foundation for Next-Generation Applications
During his summit appearance, Lubin elaborated on the strength of the Ethereum mainnet. He stated that the security and foundational infrastructure it provides are crucial enablers for developers, allowing them to focus primarily on building innovative applications. Lubin pointed to a future where applications will require "high-performance blockchain databases" to function effectively—a role he believes is perfectly suited for L2 scaling solutions.
He specifically highlighted Consensys's own Linea network and the upcoming MegaETH project as examples of the next wave of L2 innovation that could drive the ecosystem forward.
The Proliferation of L2s: Innovation or Fragmentation?
Data from L2Beat reveals a crowded landscape, with over 140 active Ethereum scaling solutions and more than 60 utilizing rollup technology. While this diversity signifies vibrant experimentation, it has also led to investor skepticism. Some market participants question whether many L2s are merely "extracting value without providing sufficient contribution."
The core of this criticism is that while L2s significantly improve user experience and transaction efficiency, they divert substantial transaction volume and associated fee revenue away from the L1 mainnet. Critics argue that without adequate economic value fed back to the base layer, the mainnet's revenue model and overall security could be diluted over time.
The Dencun Upgrade: A Double-Edged Sword for Ethereum
The Dencun upgrade, implemented in March 2024, was a landmark event for Ethereum scalability. It successfully reduced the average transaction fees on L2s by an impressive 95%, making interactions much cheaper for users and developers. However, this success had a drastic side effect: Ethereum's mainnet revenue plummeted by 99% by September 2024.
This sharp decline has sparked a debate among investors and analysts, leading to what some are calling the "L2 decay theory." The concern is that the foundational value of the mainnet could be eroded if it no longer captures the economic activity generated by its ecosystem.
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Weak ETH Price and ETF Outflows Reflect Cooling Market Sentiment
ETH's price has faced downward pressure throughout the second half of 2024, influenced by both broader market conditions and the sharp drop in mainnet revenue. By March 11, 2025, the price had dipped to a low around $1,759, with some analysts predicting further short-term corrections.
Compounding this price weakness, data from Farside Investors shows a sustained exodus from Ethereum-focused ETFs. The most severe day of outflows was March 13, 2025, which saw a withdrawal of $73.6 million. This 11-day streak of net outflows indicates a shift in investor preference toward lower-volatility assets like cash, treasuries, and stablecoins, signaling a cooling confidence in crypto risk assets.
Navigating the Future: Can L2 Solutions Restore Confidence?
Joe Lubin's confidence in the以太坊 (Ethereum) ecosystem and the long-term potential of L2s stands in stark contrast to current market signals. The persistent worries revolve around whether L2 solutions will ultimately complement or cannibalize the mainnet's value.
With the combination of a depressed token price, collapsing mainnet revenue, and sustained ETF outflows, the key question remains: Will the L2 ecosystem evolve into a genuine engine for Ethereum's next growth phase, or is its expansion a temporary phenomenon? The answer will depend on the ability of these networks to demonstrate sustainable value creation for the entire ecosystem, not just themselves.
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Frequently Asked Questions
What is an Ethereum Layer 2 (L2) solution?
An Ethereum Layer 2 is a separate blockchain built on top of the Ethereum mainnet (Layer 1). It is designed to process transactions off-chain before finalizing them on the mainnet, thereby reducing congestion, increasing transaction speed, and lowering gas fees for users.
Why did the Dencun upgrade cause Ethereum's revenue to fall?
The Dencun upgrade introduced proto-danksharding (EIP-4844), which created a new, cheaper way for L2s to store transaction data on the mainnet. This drastically reduced the amount L2s had to pay in gas fees to Ethereum, which in turn caused the mainnet's revenue to collapse.
Are investors losing faith in Ethereum?
The recent ETF outflows suggest a short-term shift in risk appetite among some institutional investors, likely due to market-wide volatility and concerns over mainnet economics. It does not necessarily reflect a long-term loss of faith in Ethereum's technology but highlights immediate financial pressures.
What is the "L2 decay theory"?
The "L2 decay theory" is a market hypothesis that suggests the rapid growth of Layer 2 networks could inadvertently weaken the Ethereum mainnet by syphoning away its transaction fees and economic activity, potentially undermining its security model and intrinsic value.
How do L2s benefit the Ethereum ecosystem?
L2s benefit the ecosystem by enabling scalability. They allow for faster and cheaper transactions, which makes Ethereum-based applications more practical for a global user base. This can lead to greater adoption of the ecosystem as a whole.
What are rollups?
Rollups are a type of L2 scaling solution that execute transactions outside the mainnet but post the transaction data back to it. They are called "rollups" because they roll up (or batch) hundreds of transactions into a single piece of data before posting it to Layer 1, ensuring security and decentralization.