Vitalik Buterin Rejects Layer 2 Investments for THIS Specific Reason
The co-founder of Ethereum [ETH], Vitalik Buterin, recently made it clear that he does not have any intentions to invest in layer 2 networks. This decision follows his transfer of $1.3M worth of STRK, the native token of the Starknet layer 2 protocol, a few days ago.
Expressing his stance on the matter in a post on X, Buterin mentioned that he would direct all proceeds from layer 2 tokens towards charitable causes or to bolster the broader Ethereum ecosystem.
In his own words,
“I also do not plan to engage in investments in L2s or other token projects in the foreseeable future. My aim in funding projects is to support initiatives that I find valuable, especially in instances where other segments of the ecosystem might overlook them.”
This statement from Buterin emerges amidst a heated discussion regarding the contribution of layer 2 networks to the foundational layer 1 blockchain.
The Controversy Surrounding Layer 2 Networks Heats Up
Layer 2 networks have experienced significant growth over the past year, with the Total Value Locked (TVL) soaring by almost 200% according to L2Beat data. Nonetheless, this surge has not been mirrored in layer 1 blockchains.
In its August 2024 Crypto Monthly Recap, asset manager VanEck suggested that layer 2s were “cannibalizing” Ethereum revenues.
VanEck highlighted that at the start of the year, Ethereum blockchain revenue stood at $6M. By August, this number had fallen to $1.2M as transactions moved away from the Ethereum mainnet.
VanEck commented,
“Ethereum’s attempt to enhance its scalability by routing transactions to L2 blockchains has thus far not succeeded in driving value to ETH.”
A similar opinion was voiced by Bitwise Invest CEO, Hunter Horsley, who pointed out that while layer 2s return value to Ethereum by utilizing it as a settlement layer, they could have a negative overall impact since they are more user-centric.
Conflict Arises Between Solana and Ethereum Communities
The debate around layer 2 networks has led to a rift between the Solana and Ethereum communities.
Notably, the disagreement began after Solana co-founder, Anatoly Yakovenko, described these networks as “parasitic.”
Subsequently, the Head of Communications at Solana Labs, Austin Federa, clarified that “L2-ish elements on Solana” are termed “Network Extensions” and not layer 2 networks.
In response, Ethereum community member Ryan Berckmans argued that the term Network Extensions simply involved semantics as these protocols essentially performed the same functions as layer 2s.
Podcast host of The Rollup, AyyeAndy, remarked,
“Essentially, network extensions are L2s but L2s are not network extensions. It’s akin to a rectangle and a square, where one definition encompasses the other.”
As the debate continues, the layer 2 ecosystem seems to be experiencing a slowdown amidst prevailing bearish market sentiments. In the past week, the TVL for the top five layer 2s by TVL has seen a decline.