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Will The Layer-2 Scaling Solutions Be Threat To Ethereum (ETH) Price Rally?

Written by: Elena R

August 14, 2022

The Ethereum (ETH) blockchain’s potential effects on scaling solutions are being examined by cryptocurrency exchange Coinbase.

Layer-2 scaling solutions (L2s), according to a study by Coinbase, may reduce ethereum earnings. The future of L2s may very well be a zero-sum game, with whatever L2 eventually powers the whole Ethereum ecosystem being the one that hosts the majority of decentralised applications. This implies that L2s might someday take money away 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.

Also, according to Token Terminal, over the past 12 months, Ethereum has generated $9.971 billion in total income, as opposed to a combined total of only about $78 million 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 migrates to L2s and those L2s require their own tokens to facilitate transactions, that could potentially reduce the staking yields to validators who will earn less on those net transaction fees. If that discourages staking on the platform, that could increase the size of the ETH liquid circulating supply, possibly hurting ETH prices.”

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’s possible that L2s’ impact on Ethereum’s earnings will only be temporary. Revenues in the long run are dependent on increased activity in the entire crypto ecosystem as well as if Ethereum succeeds in dominating the wider 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.

Elena R

Elena is an expert in technical analysis and risk management in cryptocurrency market. She has 10+year experience in writing - accordingly she is avid journalists with a passion towards researching new insights coming into crypto erena.

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