According to analysts, increasing limitations on Ethereum’s mainnet infrastructure are driving users, developers, and capital towards Layer 2 solutions and alternative blockchains like Solana.
As demand for more scalable and faster blockchain networks grows, analysts say users are looking for new environments to conduct their activities.
“Layer 2s on Ethereum are a result of the underlying infrastructure not being sufficient to handle users, transactions, and data. Users and capital are migrating to Layer 2s and other Layer 1s out of necessity,” Zeta Markets co-founder Anmol Singh said in a statement.
According to Qi Zhou, founder of QuarkChain and EthStorage, the expansion of Layer 2 networks on Ethereum, such as Arbitrum, Optimism, and zkSync, offers scalability solutions but has also led to challenges such as liquidity fragmentation. Zhou noted that each Layer 2 network operates with isolated liquidity pools, which can disperse liquidity and increase problems for users bridging assets between networks:
“Users often need to bridge assets across Layer 2s, which increases friction and transaction costs. This dispersion can dilute liquidity, making it harder to achieve deep liquidity pools within a single ecosystem. When liquidity is diluted, there is a risk of lower market efficiency, increased slippage, and higher fees for larger trades.”
To address these issues, Zhou pointed to emerging solutions like cross-Layer 2 protocols, rollup-to-rollup transfers, and shared liquidity centers that aim to seamlessly connect assets across different Layer 2s. “Striking a balance between scalability, liquidity density, and user experience will be crucial to maximizing the adoption and utility of Ethereum Layer 2s,” he added.
As Ethereum grapples with fragmentation, Zeta Markets’ Singh touted Solana’s “monolithic” architecture, which can perform core DeFi activities at scale. “Solana’s efficiency and low latency allow it to process transactions and maintain liquidity within a single layer,” Singh said, highlighting its efficiency.
In the a16z State of Crypto Report published in October, Solana reported that its monthly active address count reached nearly 100 million compared to Ethereum’s 57 million, indicating higher participation in Solana. Singh attributed this growth to new applications like pump.fun, new entrants to the platform like daos.fun, and Solana’s ability to build a scalable ecosystem with strong fundamentals.
Singh also noted recent trends in Total Value Locked (TVL) metrics. While Ethereum’s TVL has decreased significantly, dropping by around $20 billion since the beginning of June, Solana’s TVL has increased from $4.8 billion to $6.3 billion over the same period.
“Four of the top ten memecoins by market cap, Dogwifhat, Bonk, Popcat, and Mew, have recently emerged on Solana, indicating increasing opportunities on Solana compared to Ethereum,” Singh added. He noted that memecoins have been driving retail investor demand this cycle, which points to a broader shift in user engagement and market dynamics.
*This is not investment advice.