Not all Ethereum layer 2s are dying, but many general-purpose chains no longer have a reason to exist

ShareShare this articleCopy linkX iconX (Twitter)LinkedInFacebookEmailNot all Ethereum layer 2s are dying, but many general-purpose chains no longer have a reason to existIn this week's edition of The Protocol Newsletter, we're looking at the state of the Ethereum layer-2 ecosystem. By Margaux Nijkerk|Edited by Nikhilesh De Jun 4, 2026, 1:52 p.m. 5 min readMake preferred on What to know: Welcome to The Protocol, CoinDesk’s tech newsletter covering the most important stories in blockchain. I’m Margaux Nijkerk, a reporter at CoinDesk. We’re revamping the newsletter to bring you a deeper look at the biggest trends, breakthroughs and debates shaping blockchain technology each week. This week, we’re diving into the state of the Ethereum layer-2 ecosystem. When Zero Network announced it was shutting down last month, the reaction across crypto was weary: Another Ethereum layer-2 just bit the dust. The closure joined a growing list of struggling rollups and came amid renewed debate about whether Ethereum's sprawling layer-2 ecosystem has become too crowded. At the same time, Ethereum creator Vitalik Buterin has urged developers to rethink the network's long-term scaling roadmap, while several major projects have shifted away from marketing themselves as general-purpose blockchains and toward more focused applications in payments, stablecoins and tokenized assets. To many observers, the developments have revived a familiar question: Has Ethereum's sprawling layer-2 ecosystem become too crowded? Industry participants, however, argue the opposite. "The thing to recognize is that anywhere where somebody would be running a smart contract on an existing blockchain, someone could equally run a layer two," said Ben Fisch, co-founder and CEO of Espresso Systems. "We're in a consolidation phase for general-purpose layer twos, not layer twos broadly." Ethereum layer-2s exploded over the past several years as improvements in rollup technology dramatically reduced the cost and complexity of launching new chains. Rollups work by processing transactions off Ethereum's main blockchain, bundling hundreds of them together, and then periodically posting compressed transaction data back to Ethereum for settlement and security. The model allows applications to offer faster transactions and lower fees while still relying on Ethereum as the ultimate source of trust. The result was a flood of networks built using infrastructure stacks such as Optimism's OP Stack, Arbitrum Orbit and zkSync. But while launching a chain became easier, attracting users proved much harder. "There were way too many general-purpose layer twos, which frankly don't make sense as a product, because there's no reason to have many, many versions of the same thing," Fisch said. The numbers support that view. Today, activity across Ethereum's layer-2 ecosystem remains heavily concentrated among a handful of networks. Base and Arbitrum alone account for more than 80% of layer-2 DeFi total value locked (TVL), according to DefiLlama data. That concentration has only become more apparent as smaller chains struggle to maintain liquidity. Over the past six months, networks including Linea, World Chain, Starknet and Mantle have all seen declining bridge deposits. Linea's deposits, for example, fell from $976 million in November 2025 to $367 million in May 2026, a decline of more than 60%. "I think only a few L2s with clear financial demand will be able to sustain themselves over time," said Alice Hou, a former research analyst at Messari, to CoinDesk. For Hou, the key issue isn't whether layer-2 technology works, it's whether a network can generate enough activity to justify its existence. "Without enough blockspace demand, user activity or developer traction, there is little reason to continue maintaining an L2," she said. Ironically, the economics of launching a rollup have never looked better. Ethereum's Dencun upgrade, introduced in 2024, dramatically reduced the cost of posting rollup data to Ethereum through blobs. According to Messari research, data availability costs now represent only a small fraction of operator expenses for many OP Stack chains. "From an operator perspective, it is definitely cheaper to run an L2 today," Hou said. "The economics of launching an L2 have become easier, but the real challenge is still generating enough sustained demand to make the network worth operating." That dynamic has created a paradox. The barriers to creating a blockchain continue to fall, but the barriers to attracting users continue to rise. As a result, many teams are discovering that simply offering another Ethereum-compatible chain is no longer enough. "People have realized that all the different general-purpose blockchains compete with each other," Fisch said. "If you want to succeed, you need to build out a differentiated application." The shift is already visible across the industry. Several blockchain projects that once emphasized infrastructure are

Not all Ethereum layer 2s are dying, but many general-purpose chains no longer have a reason to exist

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