L2s Are Becoming the New "Old" L1s: Why Ethereum's Price Is Stagnant and the Changing Competitive LandscapeDid Ethereum win the L1 war? It seems the answer is no. This is one of the main reasons for Ethereum's stagnant price
L2s Are Becoming the New "Old" L1s: Why Ethereum's Price Is Stagnant and the Changing Competitive Landscape
Did Ethereum win the L1 war? It seems the answer is no. This is one of the main reasons for Ethereum's stagnant price. During the bear market, the narrative of Ethereum as the "L1 winner" was prevalent, and I, too, was a firm believer. We all know the bull market will eventually return, so many people sold their alt-L1 assets, opting to hold what we believed to be the two assets that wouldn't disappear: BTC and ETH. All other L1s were supposed to be forgotten, primarily due to two reasons:
1. Competition from alt-L1s: alt-L1s competed with those seeking high returns by offering liquidity mining rewards and the same forking protocols (like Aave and UniswapV2). On the application layer, there was little innovation aside from Ethereum. Avalanche, BNBChain, Polygon... they all looked the same. The only differences were: lower gas fees, faster speeds, and the amount of tokens they could offer as liquidity mining rewards.
2. Rise of Ethereum L2s: The new narrative of Ethereum L2s emerged with the arrival of Optimism, Arbitrum, etc., promising scalability without sacrificing security. They performed remarkably even during the bear market, while alt-L1s continued to lose total value locked (TVL) and users.
The alt-L1s were in trouble and needed to reinvent themselves. And they did.
Solana was the biggest blow to Ethereum maximalists. SOL was hit hard by the FTX collapse but not only recovered but also shattered the illusion that Ethereum's rollup approach was the only viable scaling solution. As more L2s rolled out, the fragmentation of liquidity and user experience intensified. With each new L2, Solana's monolithic architecture became more appealing.
The modular vs. monolithic debate ended the narrative of "Ethereum winning the L1 war." Those who hoarded ETH during the bear market now continue to sell their ETH for SOL and other L1s.
Other L1s have also innovated and now have a clearer, more diverse vision compared to a few years ago.
- Avalanche: Just launched Avax9000, allowing the launch of permissionless L1s (rather than L2s) for specific application needs. Compared to Ethereum L2s, AvaxL1 benefits from unified cross-chain communication. And Avalanche provides a more clear value accrual to the main chain. Avax's greatest success is the "Off the Grid" game, proving that Avalanche's vision is coming to fruition. It could also revive the once popular GameFi narrative.
- Near: Established itself as both a monolithic and modular blockchain. Near also provides chain abstraction services to L2s through a unified user interface (BOS), supporting L2 account aggregation and implementing sharding technology that Ethereum abandoned.
- BNBChain: Launched opBNB L2 to reduce fees, but the more important upgrade is BNB Greenfield, focusing on the monetization of data and intellectual property (DataFi) as well as decentralized AI (privacy-preserving LLM training).
- Fantom: Further strengthens its monolithic design with the Sonic upgrade, bringing 2000 TPS without needing sharding or L2s. The goal is to attract a new generation of dApps.
- Gnosis: Building the financial dApps that I use every day.
L1s that failed to innovate and adapt are struggling. The most apparent example is Cosmos. Once a pioneer of the modular blockchain narrative, it is now losing users, liquidity, and market attention. $ATOM is now trading back to levels before the 2020/21 bull run.
However, new L1s like Sui, Sei, and Aptos still benefit from the past strategy of being the "new shiny L1." To survive long term, they need to innovate and differentiate themselves.
Meanwhile, today's new L2s are similar to the L1s of the past, with near-zero transaction fees and little differentiation besides branding. They attract forking protocols created for airdrops but lack innovation. As the airdrop hype fades and TVL declines, L2s must diversify and attract unique dApps to survive. At the same time, their token economics are poorly designed. Those that fail to succeed may be abandoned like some of the EVM chains from the 2020 DeFi summer.
However, I also see signs of diversification: the L2 interoperability alliance (OP Superchain, zkSyncElastic chain, etc.), Base benefiting from Coinbase's support, and zkSync paying millions to attract unique dApps.
Overall, Ethereum is not the winner of the L1 war. The value accrual of all L2s is still unclear. This is good for the entire industry. Even if Ethereum fails, alternative L1s are building their own futures. They also offer use cases that Ethereum might not be suited for.
Now is also the time for L2s to prove themselves.
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