The Ethereum (ETH) blockchain’s potential effects on scaling solutions are being examined by cryptocurrency exchange Coinbase.
According to a study by Coinbase, Layer-2 Scalping Solutions (L2s) could undermine Ethereum’s earnings. The future of L2s could very well be a zero-sum game, whichever L2 ultimately powers the entire Ethereum ecosystem that hosts most decentralized applications. This means that L2s may someday withdraw money from Ethereum.
According to Coinbase, scaling solutions like Polygon (MATIC), Optimism (OP), and Arbitrum have only brought in 1% of Ethereum’s income over the last 12 months.
Furthermore, according to Token Terminal, over the past 12 months, Ethereum has generated $9.971 billion in total revenue, as opposed to only about $78 million in total revenue on Arbitrum, Polygon, and Optimism.
The crypto exchange says that scaling solutions may result in a drop in staking yields after Ethereum switches to a proof-of-stake (PoS) consensus method. This could have a detrimental effect on the price of ETH.
“If more user activity is migrated to L2s and those L2s need their own tokens to facilitate transactions, that could potentially reduce the yield for validators who are lower on those net transaction fees.” If this discourages betting on the platform, it could increase the size of the ETH liquid circulating supply, potentially hurting the ETH price.”
Will it boost traffic on the ETH network?
However, according to Coinbase, scaling solutions might ultimately be an advantage for Ethereum because they will boost network traffic.
Additionally, it is possible that the effect of L2s on Ethereum’s earnings will be only temporary. Revenue in the long run depends on increased activity across the crypto ecosystem as well as if Ethereum succeeds in dominating the wider blockchain market.
The extra activity that eventually occurs on the network could offset the early income impact if L2s enable more transactions by making them more affordable, quick, and simple.
