The limitations of Ethereum’s mainnet infrastructure are pushing users, applications, and capital towards Layer-2 solutions and competing blockchains like Solana, according to analysts. The demand for faster and more scalable solutions is driving this migration.
Anmol Singh, co-founder of Zeta Markets, told that Ethereum’s underlying infrastructure struggles to handle the growing volume of users, transactions, and data. This has led to the development of Layer-2 solutions, but users and capital are also migrating to alternative Layer-1 blockchains like Solana.
While Layer-2 solutions offer scalability benefits, they also introduce the challenge of liquidity fragmentation. Qi Zhou, founder of QuarkChain and EthStorage, explained that each Layer-2 network, such as Arbitrum, Optimism, and zkSync, operates with its own isolated liquidity pools. This necessitates bridging assets between different Layer-2s, increasing friction and transaction costs. The resulting dispersion of liquidity can impact market efficiency, increase slippage, and lead to higher fees, potentially deterring user engagement.
However, Zhou also highlighted emerging solutions designed to address this fragmentation. Protocols offering cross-Layer 2 liquidity aim to enable seamless asset flow between networks. Furthermore, solutions like Ethereum’s native Layer-2 rollup-to-rollup transfers and shared liquidity hubs could aggregate liquidity and improve accessibility across Layer-2s. The future success of Ethereum’s Layer-2 ecosystem hinges on finding a balance between scalability, liquidity concentration, and user experience.
In contrast to Ethereum’s challenges, Singh emphasized Solana’s “monolithic” architecture, which processes transactions and maintains liquidity within a single layer. This architecture allows Solana to handle decentralized finance (DeFi) needs at scale, boasting high throughput and low latency. Singh noted that Solana’s Layer-2 solutions, like Bullet, are purpose-built for specific use cases like derivatives trading, where speed and efficiency are paramount.
Citing data from a16z’s State of Crypto report from October, Singh pointed to Solana’s approximately 100 million monthly active addresses, compared to Ethereum’s and other EVM chains’ roughly 57 million, as evidence of higher user engagement. He attributed this growth to new applications like pump.fun, platforms like daos.fun, and a scalable ecosystem.
Furthermore, Singh noted a significant drop in Ethereum’s Total Value Locked (TVL) – nearly $20 billion since June – while Solana’s TVL has increased from $4.8 billion to $6.3 billion during the same period. He also observed that four of the top ten memecoins by market capitalization (Dogwifhat, Bonk, Popcat, and Mew) originated on Solana, suggesting a shift in retail demand and engagement towards the platform. This memecoin activity, according to Singh, indicates a broader trend of emerging opportunities favoring Solana over Ethereum.
