Try Quests to earn cryptoL2 chains Continued Growth?
Question in detail:
As noted in a recent piece in Cointelegraph, “Ethereum layer-2 networks, such as Polygon, Arbitrum, and Optimism, have gone through an explosive growth phase over the past couple of months, a trend that is set to continue in 2023.”
Specifically, there’s been a notable increase in the amount of daily active users, volume traded, and more.
Will this growth continue into the new year? Or will L2 growth stagnate as 2023 continues to progress?
Overview of analysis:
The performance of the L2 chains on Ethereum has been investigated through this analysis. To track the progress the L2 chains in the early 2023, this investigation divided into the following parts:
- Investigation on performance of blockchains
- Sectoral analysis on various L2 chains (DEX, DeFi and Layer2 applications)
- Behavior of users on blockchains
The Polygon, Arbitrum and Optimism networks have been selected to find out the progress of L2 chains.
Methodology:
The data provided by Flipside has been used to handle this analysis. To handle this investigation the following steps have been passed as below:
The time period of this investigation is considered for the past 45 days and according to this time frame, the progress of L2 chains has been monitored from the last days of 2022 and early days of 2023.
- Performance of blockchains
- Blockchains→ Polygon, Arbitrum and Optimism
- Metrics→ Volume of transactions, count of active and new users, USD value of transactions, TPM, Average and total paid fee in USD, Success rate of transactions
- Sectoral analysis on selected L2 chains:
- General assessment of most popular sectors on L2 chains
- Investigate the performance of each L2 chain from DEX, DeFi and Layer2 perspectives
- Behavior of active users on blockchains
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How sticky are users on each blockchain?
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Retention of users on blockchains
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Time difference between first two transactions
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Distribution of users by count of transactions
Conclusion: By aggregating the outcomes of the previous parts draw a conclusion about the impacts of L2 chains and their applications against Ethereum network
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About Optimism network:
Optimism is a second layer solution, created to solve the scalability of the Ethereum network. Optimism in the word means optimism, and the optimism network is based on the same approach. The optimism network uses optimistic solutions to increase scalability. In this solution, Optimism, by collecting and executing transactions in its network and submitting them in a compact way and in the form of a transaction to the Ethereum network, will significantly reduce their scalability, speed of transactions and fees. This process makes the transactions not validated separately and their processing time is greatly reduced. Also, each member of the network or Validitors has the opportunity for up to a week, check the set of transactions made and, if the transaction is found, notify the network and receive a reward.
About Polygon network:
Polygon has a different approach from other projects in providing solutions to increase the scalability of Ethereum. Changing the correct strategy and rebranding Metic Network to Polygan increased the capital locked in this network from 40 million dollars to 10 billion dollars within one year. Perhaps the most important feature of Polygon is the support for most scaling methods. Also, this network provides the interaction of different chains.
Polygon networks layer is a mandatory layer that forms the ecosystem of blockchain networks built on Polygon. These networks have an exclusive forum that is responsible for local consensus and block production. Another mandatory layer is the implementation layer of the Ethereum Virtual Machine (EVM) on Polygon, which is used to execute smart contracts.
About Arbitrum network:
The Arbitrum One network is a rollup on the Ethereum network. The purpose of creating the Arbitrum network (and other rollups) is to solve the scalability problem of the Ethereum network. Blockchains seek to establish the three characteristics of scalability, decentralization and security. The conclusion we reached in the world of digital currencies over the past decade was that it is very difficult (if not impossible) to establish all three of these features in one network. Therefore, each network seeks to solve one of the missing sides in its own way; The base layer of the Ethereum network, which has two features of security and decentralization, is left to solve the problem through roll-ups. The increasing demand for Ethereum network block space has made this network more expensive (gas cost) in recent years. Arbiterum and other layer 2 utilities can greatly reduce the pressure by increasing the capacity of this network.
Key Findings:
One of the interesting parts of this investigation belong to the behavior of users on Ethereum and selected L2 chains:
- The time difference between first two transactions on various L2 chains is very close together as can be seen. However, Optimism network has lower time difference between two transactions compared to Polygon and Arbitrum.
- Over 38% of users on Polygon network have made just one transactions on this network.
- The dominant group of users on Optimism made over 10 transactions and this shown that users on Optimism are more loyal than other L2 chains.
- The daily transaction per wallets indicator reveals that the Optimism network has higher performance in this network in the first days of this investigations time frame. But since 2023, the Arbitrum network has better performance on transaction per wallet perspective.
- The retention criteria indicates that the considerable count of users made their next transaction within the 24 hours of first transaction.
Key Findings:
First of all lets compare the L2 chains including Polygon, Arbitrum and Optimism in the selected time period:
- The polygon network has been dominated other L2 chains from volume of transactions and count of active users.
- Also, the Optimism network has the highest amount of paid fee in USD compared to other chains and the Polygon network stand in the second rank.
- The Optimism network is the most expensive L2 chain among these selected chains from the point of average paid fee in USD.
Key Findings:
This part is used to identify the progress of selected L2 chains on various sectors and the detailed analysis on provided here:
- Each L2 chain has dominant sector as can be seen. For example, the Polygon network has dominated by Layer2 transactions and Arbitrum network is mostly used for DEX activity. The Optimism network is mostly used for Layer2, Dapp and DeFi programs accordingly.
- Also, the superiority of each L2 chain on various sectors has been determined through this investigation and according to the outcomes, the Layer2 application has been dominated by Polygon network.
- Also, the Optimism network is the dominant L2 chain for Dapp, DeFi and NFT sectors.
- The Arbitrum network has superiority on DEX sector as can be seen.
- The cumulative and daily charts related to the application of Layer2 sector (bridge) on Polygon has promising movement over time and has been passed the Arbitrum and Optimism networks.
- The time base analysis is used to find out the pattern of various sectors on L2 chains and track the progress of various sectors on selected networks.
Key Findings:
This part is used to compare the performance of selected networks over various metrics:
- One of the best charts to emphasize the volume of transactions comparison on blockchains is normalized daily graph of transactions. When share of Polygon, Arbitrum and Optimism networks have been determined and the superiority of Polygon network from volume of transactions point of view could be seen.
- Polygon network has higher number of active users compared to Arbitrum and Optimism networks over the 45 days.
- The L2 chains are solutions for solving scalability of Ethereum network and as shown in the outcomes Polygon network is the cheapest L2 chains among selected L2 chains.
- The USD value of transactions on Arbitrum network is higher than Polygon and Optimism networks and the Polygon chain stands in the second rank.
- The Polygon network has better performance on Transaction per minute (TPM) investigation and the success rate of networks are high but Arbitrum experienced lower rate of success rate on December 30, 2022.
- Also, the success rate of Optimism network experienced decreasing pattern since January 18, 2023.
Conclusion:
By considering the outcomes of this analysis the following statements could be concluded:
- The development of blockchain technology, in addition to many benefits, has brought problems such as low speed of transactions and insufficient scalability. These problems have encouraged experts in this field to expand the L2 model, so that they can improve scalability by using second layer solutions and rollups while reducing the gas cost.
- The Polygon network is dominating the layer 2 chain space on Ethereum, as it offers a wide range of features and benefits that make it attractive to developers. Its low transaction fees and scalability make it an ideal choice for businesses looking to use layer 2 solutions. With its increasing popularity, we can expect to see more projects utilizing layer 2 solutions on Ethereum in the future.
- Layer 2 chains on Ethereum have made significant progress in recent years and this trend is only increasing. Layer 2 solutions are designed to increase the scalability of Ethereum, allowing for faster transaction speeds and lower transaction fees. The potential of Layer 2 solutions is huge and it is estimated that by 2023, more than 50% of all transactions on Ethereum will be conducted via Layer 2 chains. This will open up new opportunities for developers to build applications with low transaction fees and high scalability.
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