[PART 3] The Ethereum Layer-2 Wars (Here’s How They’ll End)
TL;DR
Before interoperability is solved, slow transfers between L2’s will force the market to make a clear choice, resulting in one L2 taking the majority of the market.
Full Story
If you’re feeling frazzled after that last part — don’t panic, we’re in good hands!
Ethereum has the largest amount of big-brained-developer-types in the space.
Which means they’re working on a fix!
A fix that essentially makes the process of transferring your Ethereum between layer-2’s so fast n’ cheap, that you won’t even notice it!
It’ll all just happen quietly in the background. The friction will be gone…and you’ll be blissfully ignorant to how the mechanics of the exchange works.
(The same way you are with bank transfers).
That said: we still believe the L2 war will not only happen, but one clear winner will take most of the market.
Why/How? It’s all about incentives (short, medium, and long term).
In the short term, most users aren’t going to want to transfer their ETH between layer-2’s, cause it’s so damn slow n’ clunky (for now).
In the medium term, this will incentivize developers to choose the most active/popular/well funded layer-2 to build their products on.
(As to not scare people off/make it as easy as humanly possible for a large amount of users to adopt their product).
In the long term, no matter how cheap n’ fast transfers become between two opposing Layer-2’s — the cost to move Ethereum from one person’s wallet to another, will always be cheaper/faster if the transfer is being made on the same chain.
And this creates a snowball effect…
Early on, users will avoid transferring between L2’s → which will drive siloed adoption to a range of L2’s → the L2 with the most adoption will get the majority of developer love → by the time these 20+ L2’s become fully interoperable (aka friendly with one another), it’ll be too late…
Cause sure, the fees and speed of transferring between any/all L2’s will eventually become negligible.
But by that time, the market will have chose one dominant chain (alongside a few runner-ups).
Don’t believe us? The same thing happened with email.
Email is an ‘open protocol’ (aka open set of rules) that anyone/everyone can build upon, without prior permission and free of charge (just like Ethereum).
Yet one one email platform owns 58% of the global email market, while the runners up trail behind with a % of ownership that falls off at a drastic rate:
Apple @ 58.07%
Gmail @ 29.67%
Outlook @ 3.42%
Right now, the top Ethereum L2 scaling solutions (by total value) look like this:
Polygon @ $10.1B
Arbitrum @ $4.37B
Immutable @ $3.8B
So how will the L2 wars end?
With one winner taking most.
Which L2 will that be?
No idea ¯\_(ツ)_/¯