Introduction

The Ethereum ecosystem has experienced significant growth over the last few years. With growing demand for dApps, NFTs, and block space, users are paying hefty fees to use the congested network. In 2021, when the price of $ETH was settling around $3,000, users were spending $100+ on gas fees for one transaction alone. Along come Layer 2s (L2), Layer 2 refers to a network that runs on top of L1s to improve scalability and efficiency while reducing bottlenecks of transaction costs from the underlying L1 chain. Layer 2 protocols aim to solve the problems of high fees and slow transactions by finding ways to ease the network load. To learn more about Layer 2s and Optimistic Roll-ups see the sources section at the bottom.

In this analysis, we will be breaking down three Layer 2 neworks. Our goal is to analyze user on-chain activity to track, measure and predict the growth of Layer 2 networks throughout 2023.

Methodology

• We will be taking a look at five layer 2 networks (Polygon, Arbitrum, Optimism, zkSync, StarkNet) to observe active users, transactions, volume and bridge activity on the chains. First we will be breaking down bridge transfers from each chains native-bridge. Then we will take a look at crosschain bridges to see if there is increased growth in multi-chain bridging. We will also be using the information found to answer the following questions:

  1. Does the outlook of the crypto market forecast a bullish or bearish trend for Layer 2 Networks?

  2. Will this growth continue into the new year? Or will L2 growth stagnate as 2023 continues to progress?

I used Flipside Crypto to retrieve the data and run queries. You can find the tables used in the sources below.

Analysis:

Ethereum is scaling, and with Layer 2 scaling solutions like Polygon, Arbitrum and Optimism it’s happening quicker than ever. Observe and measure the growth across the Layer 2 blockchains / protocols mentioned. Results could be

Below we will be breaking down user metrics and bridge activity within the last 6 months, followed by aggregated stable coin holdings across L2 chains.

Lets break down our analysis in 2 main parts:

1. L2 User Metrics

   - Increase in Daily Active Users (DAU), transactions and volume

2. Bridge Volume (ETH)

   - Increase in Bridge activity (Native + Crosschain)

L2 User Metrics

Below we will be looking at user metrics from the chains mentioned above. As we can see, leading into the new year there was a spike in active users across all chains before cooling down. With users growing slowly, but steadily, it is still clear that growth has nearly doubled since last year.

6 month highs:

• Polygon: 730,000

• Arbitrum: 77,000

• Optimism: 111,000

• zkSync: 7,500

• StarkNet: 3,500

Bridge Volume (ETH)

Below we will be looking at user metrics from the chains mentioned above. As we can see, leading into the new year there was a spike in active users across all chains before cooling down. With users growing slowly, but steadily, it is still clear that there is growth.

We can also see that the amount of $ETH bridged is also reaching 43 month highs.

When taking a look at crosschain bridge we can also see that the most popular bridges are Hop and Synapse, with Across being the next most active.

Since October 2022, there has been significant growth across all layer 2s. With daily active users reaching 4x what they were previously were in September 2022. Most of this could be speculation with Arbitrum and ZkSync expected to launch throughout the 2023 year, but with the ETH bridged reaching record high numbers, it’s safe to say the breakout of L2s have just begun.

Conclusion:

Based on our analysis, It is quite clear that L2s have become the main attraction when exposed to the Ethereum ecosystem. We can now make the assumption that L2s have had significant growth and will continue to have growth as long as users continue to bridge and be active. It is also obvious that users are more willing to bridge their $ETH over to other chains than ever before. We came to this conclusion by looking at the significant growth across all layer 2 chains.

Sources:

• The following tables were used from Flipside Crypto for this analysis:

  • ethereum.core.fact_transactions

  • polygon.core.fact_transactions

  • arbitrum.core.fact_transactions

  • optimism.core.fact_transactions

  • erc20.ERC20_evt_Transfer

• This is a submission for @MetricsDAO EVM 6. - Continued Growth:

• You can find the corresponding Flipside Crypto dashboard with queries and all: