Analysts from Van Eck, an investment manager, predict that Ethereum’s layer 2 scaling networks will reach a market capitalization of $1 trillion within six years. These networks will consist of numerous chains that cater to specific use cases. Van Eck’s senior digital assets investment analyst, Patrick Bush, and digital assets research head, Matthew Sigel, stated in a report on April 3 that layer-2 blockchains will take advantage of Ethereum’s primary challenge, which is its limited capacity to process, store, and compute data.
Bush and Sigel arrived at their $1 trillion market cap forecast by estimating that Ethereum would capture 60% of the market share among all public blockchains and then determining the volume of assets within the Ethereum ecosystem. Currently, there are 46 Ethereum layer 2s with a total value locked of $39 billion, with the largest being Arbirtum, which has $18 billion locked, according to L2BEAT.
The analysts highlighted the scalability issue as a critical hurdle for Ethereum’s dominance in smart contracts. While Ethereum offers unmatched security and decentralization, transaction fees and processing times skyrocket when usage intensifies. Consequently, Ethereum’s development is now focused on improving its ability to process transaction data on layer 2. This is evident in the recent Dencun update, which introduced the “Blobs” feature to lower layer-2 transaction fees by optimizing data storage.
Van Eck’s analysts also noted the potential for substantial revenue generation on layer 2 networks compared to the base Ethereum network. However, they expressed a generally bearish stance on the long-term value of most layer 2-related tokens due to intense competition. The top seven Ethereum layer 2 tokens already have a fully diluted valuation of $40 billion, and the launch of many strong projects over the next 18 months is expected to increase this to $100 billion. The analysts believe that the cryptocurrency market may struggle to absorb such a supply without significant discounts.
Looking ahead, the analysts forecasted a future where thousands of use-case-specific layer 2 networks coexist, with only a few major players dominating the general-purpose layer 2 market. These use-specific networks would be segmented by sector, application, or function. Additionally, there will be a handful of general-purpose chains that benefit from the network effect, where more users contribute to their value. The analysts also predicted that most roll-ups would eventually adopt the zero-knowledge framework (ZKU) due to its numerous advantages.
In conclusion, Van Eck’s analysts anticipate significant growth and diversification in Ethereum’s layer 2 scaling networks, leading to a trillion-dollar market capitalization in the next six years.