Are L2s Still Worth Launching? The L1 vs. L2 Showdown
Over the past year, enthusiasm for Layer 2 rollups — long praised for their scalability, lower fees, and rapid launches — has significantly cooled off.
Over 140 L2s are live, yet fewer than half exceed $10M in TVL, fueling consensus that the ecosystem is oversaturated, with Ethereum’s underperformance further dampening the mood.
Meanwhile, “alt” L1s — most notably Solana, though also Sui and Hyperliquid — have demonstrated remarkable economic potential in both fundamental growth and token price, prompting many to consider a fresh L1 more compelling than yet another L2.
Recent data highlights why builders and investors are having second thoughts. While, yes, select L2s like Base, Optimism, and Starknet have shown strong net flows, these remain outliers, with even high-level data showing that many of the major L2 launches of the past year — Blast, Mode, zkSync — have experienced net negative flows, according to data provider Artemis. Price performance, moreover, paints an even bleaker picture. On average, the top 10 L1s by market cap have returned +62%, whereas the top 10 L2s have averaged -64%.
This divisive trend can be attributed to multiple factors. Market fatigue over “yet another L2,” plus debates on their potentially parasitic relationship to the base chain, have tarnished their image, mixing with the fact that most L2 tokens function as “governance” mechanisms without any real everyday role on their chains. Meanwhile, Solana and other L1s have surged, at times surpassing Ethereum in a myriad of economic metrics, showing that once a chain finds its niche — even driven by memecoin fervor — it can attract substantial users and capital.
Against this backdrop, choosing between launching or investing in an L2 or an L1 is less obvious than a year ago. Although L2s once dominated headlines, oversaturation and ETH’s underperformance continue fueling interest in L1s, whose economics, design freedom, and competitive advantages may now look more attractive.
Let's dive in here and help you get a clearer picture of the current tradeoffs between new L1s and new L2s!
Why L1s Are Looking More Attractive Right Now
Free from the technical and economic constraints of relying on Ethereum, L1s can pursue novel designs, capture more of the value they create, and foster stronger token utility — proving why many now see L1s as the more attractive choice. Let's look deeper at these advantages.
Design Control
Launching a new L1 offers a clean slate, unburdened by Ethereum’s or rollups’ constraints. Instead of conforming to fixed block times and gas models, L1 developers enjoy full control to shape their consensus, execution, fee structure, and governance. Such freedom enables niche specializations — like Hyperliquid’s lightning-fast trading consensus or Sui’s object-centric asset model — that help distinguish an L1 in the market. Because L2s rely on Ethereum for security and data, they inherit Ethereum’s technical and economic constraints, limiting their design flexibility.
David C Aug 14, 2024 • 4 min read
Larger Economic Potential
Beyond technical flexibility, L1s currently capture more of the economic value on their chain, while also offering greater potential for ecosystem-wide scaling.
By design, L2s must “rent” security from a base chain, cutting their revenue. Moreover, due to the sheer amount of L2s, their competition for blob space on Ethereum has also increased fees for several L2s, rising over 300% for some chains, further impeding their profitability. In contrast, an L1 retains 100% of its network fees. It’s therefore unsurprising that the year’s three top revenue-generating blockchains, by a long stretch, are all L1s — Tron, Ethereum, and Solana. New L1s like Sui, Monad, Aptos, and Berachain also command strong investor interest, yielding more funding to help them achieve their economic potential.
Further, L2s typically serve as specialized slices of broader ecosystems — rather than full ecosystems — limiting their upside. Though this may shift over time, an L1’s ability to retain all network fees and remain “general-purpose,” while crafting a market niche over time, can foster a more robust onchain economy in the long run.
Fundamental Token Value
Another advantage for L1s comes from the variety of ways their tokens accrue long-term value, rooted in their fundamental network role.
Whereas most L2 tokens lack value beyond “governance,” an L1’s token exists primarily to secure the network against 51% attacks. Its price thus directly ties to network security: a larger market cap raises the cost of an attack. This alignment incentivizes the network to increase the token’s market cap, a purpose L2 tokens currently lack. Within this frame, it proves interesting to consider that the most successful L2, Base, doesn’t have a token.
Further, L1 tokens in Proof-of-Stake systems like Ethereum and Solana directly capture fees users pay to the network through transactions. That design directly converts transaction activity into token value, often positioning the asset as the network’s “native currency” or store of value. In other words, just as gold or U.S. dollars hold global trust, tokens like ETH or SOL aim to provide a similar value anchor in their respective ecosystems. By offering security and serving as the default means of exchange, they develop trust and demand that helps them act as a store of value, used across the chain’s entire economy.
Over time, these tokens may gain a “monetary premium:” as the economy grows, so does demand for the token to power apps and fuel capital flows. If enough users view it as a secure store of value — whether staked or simply held — the token can act as “money” within (and beyond) its ecosystem.
Hence, the larger and more active the network, the likelier its token will be regarded as a store of value — arguably evident in the relative stability of blue chip L1 tokens. Of course, such trust doesn’t form overnight; it demands consistent growth, strong security, and actual utility. However, if an L1 fosters a truly vibrant ecosystem, its token could become a widely recognized, sovereign asset extending well beyond a simple use case as a gas or governance token. Wouldn’t you like to see your favorite L1 token become the default cryptocurrency?
A Note on L1 Trade-Offs
Of course, L1s also come with major challenges, often making them harder to engineer than an L2.
One large hurdle is bootstrapping a validator network from scratch, an expensive, resource-intensive task that requires decentralization over time. An L1 also demands extensive expertise across a series of fields like cryptography, distributed systems, and game theory — expensive skills to acquire. Now, contrast that with L2 frameworks, which provide a more plug-and-play scaling approach and lower barriers for new teams. Moreover, while the L2 realm is crowded, the L1 space has its own saturation issues, with only chains bringing real novelty gaining any real traction. Still, the promise of full sovereignty and rewards entices ambitious builders who want a bigger slice of the crypto pie.
Yet, There Remains a Case for L2s
Despite the constraints and challenges L2s face, pursuing the rollup path can still deliver meaningful advantages for many projects.
Supportive Infrastructure & EVM Compatibility
Whereas L1 builders start from scratch, L2 teams can use frameworks and rollups-as-a-service platforms to launch faster and tap into existing ecosystems from day one.
Tools like the OP Stack and Arbitrum Orbit offer clear-cut rollup templates, connecting new chains to established user bases and developer communities. Tools like AltLayer and Conduit go further, managing core operations so teams can launch rollups with minimal overhead.
Moreover, building an EVM-compatible L2 leverages the leading onchain standard and most active developer community, enabling integration with existing wallets, explorers, and popular Ethereum dApps.
David C Mar 7, 2024 • 7 min read
Ecosystem Support
Some L2 ecosystems also provide substantial support for new chains, helping offset costs and risks.
For example, Optimism provides stimulus to chains built on the OP Stack and aligned with its “law of chains,” granting OP airdrops through retroactive funding. Further, Optimism is introducing its interoperable token standard, the SuperchainERC20, which will allow tokens deployed across Optimism’s network of chains to be smoothly interoperable, erasing issues of liquidity fragmentation and improving user experience.
Lower Operational Costs
Finally, while an L1 must establish, incentivize, and decentralize its own validator set — an expensive and resource-heavy endeavor — an L2 essentially outsources security to the parent chain, circumventing the majority of these costs.
Beyond running a sequencer to order transactions, L2s do not need to shoulder the full burden of hosting or rewarding independent validators, greatly lowering their expenses relative to Layer 1s. This model reduces overhead, allowing teams to allocate more resources to product development and user acquisition.
By now, it’s clear that the choice between launching a Layer 1 or Layer 2 is less straightforward than it once seemed.
A year ago, L2s were favored for quick setup, lower fees, and their synergy with Ethereum. Today, an oversaturated L2 landscape and ETH’s lackluster performance have many reconsidering L1s for design freedom, direct fee capture, and the chance to become full-fledged digital economies. Yet, L2s still hold key advantages: access to frameworks like the OP Stack, strong ecosystem support, and reduced overhead in security.
Ultimately, the fundamental question is where meaningful economic activity — and thus long-term value — will concentrate. Whether that comes from a new L1, built from the ground up, or an L2 with built-in scaling frameworks, success will hinge on the chain’s ability to attract and retain real usage, liquidity, and community support.
Much can change in this L1–L2 landscape, but in a race to become the core of onchain commerce, the lines between them may matter less than the tangible value they deliver to users.