Can Ethereum Handle Growing L2 Demand?

“[It’s] clear that scaling actual usage is just incredibly important. If Ethereum does not offer this, then people will find it elsewhere, and people are going to have insecure blockchain experiences that are just not on Ethereum.”

- Vitalik Buterin via Ethereum ACDE Call #197

Most of us who spend time in the world of Web3 believe that new waves of adoption are around the corner. From global payments, tokenization, and DeFi, to gaming and online culture, the promise of useful crypto applications reaching the wider world feels closer than ever. However, for this vision to become reality, the underlying infrastructure must be prepared to handle the extra weight.

Today, we aim to answer a crucial question: Is Ethereum equipped to handle the growing demand placed on its Layer 2 solutions?

Ethereum L2 usage has soared in 2024, showcasing the demand for effective scaling solutions. With networks like Base and Optimism leading the way, daily transactions on L2s are reaching new highs. According to onchain data, in August, Ethereum processed an average of 12.4 million transactions per day across its Layer 2s. What this surge has many wondering, though, is whether the Ethereum ecosystem can keep up with more growth, or if rapid adoption of L2s might be pushing the tech to its limits?

L2s Are Feeling the Pressure

L2s are doing a great job handling Ethereum’s growing transaction load, but the numbers tell us that pressure is building. Take Base, for instance. Coinbase’s optimistic rollup has seen its usage spike nearly 300% in 2024, driven by meme coins and other trending projects. The fact that Base and other L2s are seeing this level of adoption is exciting, but it also signals a looming challenge.

Layer 2s essentially process transactions offchain before settling the data on Ethereum’s mainnet. This process of batching and compressing transactions is key to keeping costs low and speeds high. But as the demand for L2 blockspace grows, the challenge of efficiently handling all that data grows too. Without some major upgrades, L2s might hit a wall and start struggling to service this increasing demand.

If that happens, it creates congestion, increases fees, and slows things down—exactly the issues L2s were meant to fix in the first place. That’s why many are looking to Ethereum Improvement Proposals (EIPs) like PeerDAS and Danksharding to help solve these problems and ensure that Ethereum can continue scaling effectively.

Scaling Ethereum

Two of the most exciting solutions on the table for scaling Ethereum’s blockspace are Danksharding and PeerDAS (Peer Data Availability Sampling). These upgrades are designed to improve data availability (DA) and scale blockspace, especially for Layer 2s.

Danksharding reworks how Ethereum handles and processes data by dividing data into smaller, more manageable "shards". Each shard can be processed in parallel, which significantly increases Ethereum’s overall data throughput—particularly benefiting L2s that rely on the L1 for DA and security. By increasing the available blockspace, Danksharding enables L2s to settle more transactions efficiently.

PeerDAS is another important component of Ethereum’s roadmap that ensures DA for these shards. It allows validators and light clients to verify the availability of data without downloading it all, by using sampling to probabilistically confirm that the data for each shard is present. This reduces the resource requirements for validators, contributing to a more scalable and decentralized network.

Together, Danksharding and PeerDAS enable validators to secure the network without needing to store or download the full state of blocks, as they only need to verify DA via sampling methods. These two upgrades can address many of the scaling issues that L2s are starting to face, unlocking more onchain blockspace for the adoption and activity that is expected to come.

However, as with any major upgrade, these innovations are still under development, and there are concerns that delays could hold up Ethereum’s ability to scale quickly enough to meet rising demand.

The Worry About Delayed Upgrades

The next major upgrade for Ethereum, known as the Pectra hard fork, promises to bring many new EIPs into the fold, but PeerDAS is not being included in it. Pectra already has more EIPs than any other hard fork that’s come before it, and with many competing agendas at the table PeerDAS will have to take a backseat.

This has raised eyebrows, especially among L2 developers. With PeerDAS being delayed, L2s could find themselves struggling to handle the growing demand for existing and upcoming applications.

It has been suggested that, in the meantime, Ethereum should increase the target blob space—the amount of data L2s can upload to the base layer. This opinion was cosigned by Ethereum founder Vitalik Buterin during the last Ethereum Core Developers Execution Layer call. Vitalik emphasized the importance of ensuring that L2s are equipped to handle rising adoption, and even went as far as to say that a relatively small increase in the blob capacity (33%) would be more valuable than several of the EIPs currently in development.

Jesse Pollak, a lead builder at Base, took to Twitter to voice his support:

Still, increasing target blob space is not a long-term solution, and as Ethereum researcher Mike Neuder pointed out on a recent episode of the Bankless podcast, Ethereum should be focused on ensuring that adoption of digital assets continues to grow, putting emphasis on developers to keep improving DA for L2s.

If Ethereum’s planned upgrades get pushed back, L2 networks could face serious issues over the next 12 to 24 months. The demand for blockspace isn’t slowing down, and without PeerDAS or Danksharding, L2s may see network congestion and higher fees.

Additionally, if PeerDAS and Danksharding are delayed too long, there is a fear that alternative networks who trade-off security for faster execution may come into higher demand. That would result in Ethereum losing TVL, and the industry at large sacrificing a piece of its core mission and values.

Closing Thoughts

There’s no doubt that Ethereum’s L2 networks are handling higher usage more effectively than Ethereum mainnet ever could. But as the demand for blockspace keeps climbing, the Ethereum team will need to ship critical upgrades to make sure L2s can continue scaling.

The good news is that these solutions are on the way. The not-so-good news is that delays could leave L2s vulnerable to congestion, higher fees, and slower performance—all things that put a damper on user experience and lead users to seek out faster, more insecure alternatives. In order to avoid that outcome and keep the momentum pushing forward we hope to see DA upgrades come into effect sooner rather than later. If they do, the future for L2s should continue looking very bright.