2022 Layer 2 in Review

Force Community
7 min readJan 4, 2023

Stablecoins, hedge funds, lenders, and exchanges all imploded in horrible ways in 2022, making it a gloomy year for crypto. Much of space has crashed and burnt, yet pockets of development have survived. The Layer-2 ecosystem is a perfect illustration of this long-term expansion.

Ethereum’s superior scaling solutions quietly achieved a breakthrough in 2022, with a tremendous increase in key KPIs and several milestones at both the infrastructure and application levels. With that in mind, let’s take a look back at L2'22 and see if 2023 will be another breakout year.

Matrics Snapshots

TVL

ETH Denominated L2 TVL — Source: L2Beat

The USD value of assets bridged onto L2s dropped by 28.6 percent, from $5.7 billion to $4.1 billion. However, this is most likely due to a drop in crypto prices rather than a withdrawal of user funds, as ETH-denominated TVL increased 120.6 percent from 1.6 million to 3.4 million. This implies that net-of-prices, L2s saw considerable liquidity inflows in 2022.

Transactions

Arbitrum Monthly Transactions — Source: Dune Analytics

Arbitrum’s transaction volume surged significantly throughout 2022 as a consequence of growing traction in native dApps such as GMX, as well as the Nitro update, which significantly decreased transaction costs. Between Q1 and Q4, the network’s transaction count increased 590 percent, from 5.0M to 34.9M.

Optimism Monthly Transactions — Source: Dune Analytics

Optimism has also witnessed a significant spike in transactions, most likely as a result of increased activity following the debut of the OP and related incentive schemes. Optimism executed 3.2 million transactions in Q1 and 30.3 million in Q4, an increase of 846.7 percent.

Users

Arbitrum Monthly Active Users — Source: Dune Analytics

Arbitrum witnessed significant growth in active users throughout 2022, owing to, as previously stated, the utilization of programs such as GMX as well as the Nitro scalability update. The L2 had a 559.1 percent increase in average monthly active users, from 91.8K in Q1 to 605.0K in Q4.

Optimism Monthly Active Users — Source: Dune Analytics

Over the course of 2022, optimism saw a large growth in users. Riding the tide of the aforementioned coin launch and incentive schemes, Optimism’s monthly active address count increased 1118.7 percent from 33.1K in Q1 to 403.4K in Q4.

Highlights

Rise of GMX

GMX emerged as the most popular L2-based dApp in 2022. While on-chain activity slowed and prices fell, utilization of the Arbitrum-based decentralized perpetual exchange skyrocketed, exploiting the improved throughput of L2s to facilitate $81.4B in trade volumes and generate $33.0M in income. GMX has emerged as a key Arbitrum primitive, accounting for 39.5 percent of the network’s TVL, with various applications including Dopex, Vesta Finance, Rage Trade, Umami Finance, and others based on it and incorporating GLP, the platform’s liquidity token.

This growth, along with good tokenomics that include revenue sharing, has resulted in the GMX token becoming one of the top-performing assets in all of crypto, increasing 87.4 percent and 487.2 percent versus USD and ETH in 2022, respectively.

L2 Tokens Drop

In 2022, many prominent L2s launched tokens. Optimism is the most notable of them, having airdropped 5% of the OP supply to early users and stakeholders. This token launch accelerated the network’s user engagement and liquidity, with its TVL increasing by 86.9 percent from its May 31 release date.

StarkWare, a zk-rollup provider, was another L2 project that issued their token. StarkWare, which raised $8 billion in May, released its STRK token in mid-November, however it is not yet traded.

OP and, of course, STRK have yet to realize their full value accrual potential when utilized to decentralize the Optimism and StarkWare sequencers. Nonetheless, their rollouts are a thrilling initial step in L2 token creation and will remain a key strategic instrument for any network.

zkSync Goes Live

The zkEVM is regarded as the holy grail of scaling solutions because it combines the EVM’s network effects and development tooling with the massive throughput of zk-rollups. zkEVMs were supposed to be several years away from becoming a reality.

Nobody seems to notify zkSync, which debuted its zkEVM mainnet, zkSync 2.0, in October. While the network is still in “baby alpha,” the first stage of a three-stage rollout, and is not yet accessible to contract installations or end customers, reaching production signifies a remarkable feat in scaling.

Lowlights

dYdX Dips

The potential loss of dYdX to Cosmos is a big setback for the L2 ecosystem in 2022. The perpetual exchange stated in June that it will abandon StarkEx in favor of launching its V4 as its own application-specific blockchain developed with the Cosmos SDK.

This is a significant blow to the current L2 ecosystem, since dYdX is the largest decentralized perpetual exchange in terms of volumes, permitting $461.2B in trade volumes over the previous year. dYdX has also fueled predictions that many more major dApps would transfer away from Ethereum, bypassing the L2 ecosystem in favor of building their own sovereign chain.

This mass exodus has not yet occurred: dYdX’s decision, however, serves as a clear warning that L2s will continue to face stiff competition.

Centralization Vectors Remain

It may seem harsh to label this a “lowlight,” yet many L2s continue to function with significant trust assumptions. Arbitrum and Optimism, for example, have yet to properly integrate trustless fraud-proofs and decentralized sequencers. Furthermore, the core staff may continue to upgrade each network (albeit with a time-lock delay).

This is acceptable given that rollups are new technology, and these centralization vectors act as safety nets to protect user cash from being lost. However, these trust assumptions continue to be a source of danger as we approach 2023.

Outlook

In 2023, there are various intriguing innovations for both incumbent and new L2s. Let’s go through a couple of them now:

Arbitrum

Arbitrum has a number of triggers that should spur growth in 2023. Along with the apparently limitless number of innovative DeFi apps appearing on the L2, the network is primed to gain from Arbitrum Odyssey’s return. Odyssey is an event that rewards users with NFTs for using prominent dApps on the network. Odyssey was postponed in its second week owing to an increase in petrol prices, but it is expected to start soon.

Odyssey will very certainly function as a warm-up for the debut of Arbitrum’s token. This coin will most likely be airdropped to early users and Odyssey participants, while dApps will use it for incentive schemes. Arbitrum is keeping the specifics of its token under wraps, but if (when) it does debut, it is expected to result in a significant increase in user activity and liquidity inflows into the network.

Optimism

In 2023, Optimism is also expected to rise significantly. With the debut of Bedrock, Optimism is ready to receive a significant scalability upgrade, in addition to the continuous deployment of OP incentives and a planned second airdrop. Bedrock is an anticipated network update that is now live on testnet and is expected to minimize the cost of reporting calldata to L1 as well as enable support for “alternative proof systems” such as zk-proofs. Bedrock, in conjunction with the imminent adoption of EIP-4844, which will drastically cut gas prices for all L2s, could result in massive scaling gains for Optimism.

The OP Stack, a development platform that allows the production of custom-L2s, is also expected to receive growing popularity. With the introduction of Aevo, a decentralized options exchange from Ribbon Finance that will be built on an L2 that leverages the stack, the OP Stack is ready to gain more usage.

“Alt” L2s

The “big-two” bullish rollups are not the only ones expecting large 2023s. Several L2s are nearing major milestones, such as the mainnet debuts of zkEVMs from Polygon and Scroll. As previously stated, zkSync will continue its progressive rollout to allow smart contract deployment and, eventually, adoption by eager degens.

In addition, as developers grow more acquainted with their tooling, other networks, such as Fuel, a highly scalable ORU that uses Swell as its programming language, are expected to gain momentum.

L2s were, as we can see, a unique pocket of development within the ecosystem in 2022. There were many highs and lows, but Ethereum is scaling, and 2023 is shaping up to be another record-breaking year for L2s.

Learn more about Force Community

Twitter | Discord | Telegram

--

--