So at this point I think we’re all well aware that layer 2’s on Ethereum are starting to take off in a big way. We have Loopring’s DEX at over $100 million TVL, Optimism soft launched with Synthetix as a launch partner, Reddit has teamed up with the Ethereum Foundation to work on scaling and much more.
The above Twitter account is a bot that posts a snapshot of layer 2 decentralized exchange volume every 24 hours. $10 million for the top layer 2 DEX may seem like a small number but did you know that Uniswap was only doing $10 million of 24 hour volume in May of 2020? Yes - that’s right - the DEX that is now doing an average of $800 million of trading volume a day was only doing ~1.3% of that volume just 9 months ago. Pretty incredible, right?
You can probably see where I’m going with this at this point but just to make it clear: I believe that layer 2 DEX trading volumes are going to catch up to layer 1 over the next few months and eventually surpass them. I also think it’s going to happen faster than the 9 months it took Uniswap to grow from $10 million to $1 billion because layer 2 DEXs have a much larger addressable market than layer 1. They’re cheaper, faster and easier to use - they just don’t have a large user base yet. We also already know how to bootstrap liquidity with liquidity mining, users are already used to using tools like MetaMask, and there is now a real incentive for users to move across (persistent high gas fees).
Once we migrate most users to layer 2 we can move onto the next phase of Ethereum’s adoption curve which I would consider the “early majority”. This is when the first set of “mainstream” people start interacting with and using Ethereum apps to just get their feet wet and try something new. You could imagine these early majority adopters of Uniswap being similar to those who started using YouTube 2-3 years into its life. Though for now I still believe we’re in the “early adopters” phase because there are a lot of pain points for users - namely high gas fees, clunky Ethereum-specific UX issues (signing transactions, having to pay fees in ETH etc) and the general complexity of the technology.
Betting against layer 2 Ethereum at this point is a fools errand as I believe the migration from layer 1 is going to happen much faster than people think - all the pieces are in place and we have an incredibly smart set of builders that will make it happen. This might be optimistic but I think that by the end of 2021 we can get to a spot where DEX volumes on layer 2 are greater than those on layer 1.
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.