Ethereum Layer 2 reaches $5 billion in escrow value

According to data from L2Beat, total locked value within Ethereum’s Layer 2 scaling networks surpassed $5 billion on Wednesday, posting a 9.2 percent increase over the past week. The total locked value is currently about $5.09 billion.

The jump in locked value comes during a period of bullish momentum in the crypto-currency market. Amidst this rebound, ETH has gained nearly 20% in market value over the past week, currently trading at around $1,540. ETH is widely used as the core asset of Ethereum’s Layer 2, so its rise is part of the reason for the increase in total value locked in.

Arbitrum One and Optimism, two Optimistic Rollup solutions that collectively account for over 80% of the value locked in on Layer 2, saw their total locked in value increase by 9.3% and 10.3% respectively. Arbitrum One currently holds approximately $2.59 billion, or more than half of the value locked in on Layer 2.

However, while ETH’s rise has helped Layer 2’s locked-in value reach a new all-time high, it is not the only factor behind the rise. This week is an important one for the Layer 2 ecosystem, as zkSync is set to launch its new product, zkSync 2.0, on the mainnet on Friday. As a result, capital has been pouring into the zkSync protocol, up about 19 percent this week. zkSync is a ZK-Rollup solution and has so far seen slower growth than its leading Optimistic Rollup counterparts, but the project hopes tomorrow’s launch will give the network a boost.

ZK-Rollups and Optimistic Rollups

ZK-Rollups use zero-knowledge proofs to aggregate transactions and reduce the amount of data needed to validate transactions on Ethereum’s core network, providing faster transaction speeds and lower fees. Unlike optimistic Rollups, they do not require a long challenge period to maintain security (it takes about a week to send funds back from Arbitrum One to the Ethereum mainnet, for example). Although optimistic Rollups are currently leading the race for Ethereum Layer 2, ZK Rollups have long been touted as the technology that could help Ethereum prepare for mass adoption. Ethereum creator Vitalik Buterin has spoken about them at length, saying at this month’s Devcon conference that they could be “At least as important to the technology as blockchains“.

Interestingly, while the total value locked in on Layer 2 is down from its April 2022 peak in dollar terms, when it reached $7.4 billion, the amount of ETH in the ecosystem is now higher. According to data from L2Beat, the current total value locked in is the equivalent of about 3.25 million ETH, after a steady rise over the past year.

While the Ethereum Meltdown was the most anticipated update to the second largest blockchain this year, Ethereum enthusiasts have long hoped that the growth of Layer 2 would help the ecosystem achieve mass adoption by reducing costs and making the network more accessible. While the core Ethereum network still holds the bulk of all the capital in the crypto ecosystem with just under $32 billion locked up, Layer 2 appears to be catching up quickly.