Ethereum Layer 2 networks to hit $1 trillion in 6 years, VanECK predicts

Global fund manager VanECK has high hopes for Ethereum Layer 2 (L2) networks, predicting that these could be valued at over $1 trillion by 2030.

Despite its ambitious targets for L2s, VanECK asserted that it remains “generally bearish” about the long-term prospects of some of these networks.  The report gauged 46 L2 networks across five key areas and predicted “thousands” of more networks to emerge soon. 

“At its core, Ethereum’s primary challenge is its limited capacity to process, store, and compute data in the form of financial transactions. This bottleneck in data throughput is being addressed by offloading much of the data processing and computation to Layer-2 blockchains,” analysts at VanECK wrote in the report.

The analysts estimated that Ethereum has the potential to grab 60% of the market share across all public blockchains. In such a scenario, estimating the volume of the assets within the ethereum ecosystem, the analysts predicted a $1 trillion market cap for L2 networks alone.

“Ethereum’s dominance in smart contracts faces a critical hurdle: scalability. While the network offers unparalleled security and decentralization, transaction fees and processing times soar when usage intensifies,” the analysts continued.

The report stated that development on Ethereum is currently skewed towards enhancing the network’s ability to process L2 transaction data, highlighting the recent Dencun upgrade. The latest Ethereum mainnet soft fork saw L2 transaction fees lowered via the use of a specialized data-saving feature dubbed “Blobs.”

As Such, the analysts concluded that L2 networks are likely to generate “substantially more” revenues than the mainnet. They believe the Ethereum base network cannot “match” the transaction efficiency and user experience of second-layer networks.

However, the analysts remained bearish on the long-term prospects of most of these L2 networks.

“We see cutthroat competition amongst L2s where the network effect is the only moat. As a result, we are generally bearish on the long-term value prospects for the majority of L2 tokens,” they wrote.

They added that just the top seven L2 networks are responsible for a whopping $40 billion in total value locked. This metric is expected to surge as high as $100 billion as several notable projects are about to launch over the next 18 months.

The analysts also envisioned a future dominated by “thousands of use-case-specific” Layer 2 (L2) solutions, with “just a few major players” in the broader market. They also expect a “handful of general-purpose chains,” to gain prominence due to the network effect enhancing their value as more users join. 

Further, they highlighted the shift towards the zero-knowledge framework (ZKU), which according to them, is inevitable for most roll-ups due to “its many advantages,” marking a pivotal evolution in the L2 ecosystem.

The fund manager’s prediction comes as it awaits a decision from the SEC regarding its Ethereum ETF filing.