Ethereum Under Strain as Layer 2 Solutions Surge, Warns Justin Bons

• Justin Bons warns that Layer 2 networks are thriving at Ethereum’s expense, capturing fees and challenging its fee revenue.
• EIP-4844 implementation led to a drop in Ethereum’s fee revenue, raising concerns as Layer 2 solutions claim a larger fee share.
• Fragmentation of Ethereum’s ecosystem due to Layer 2 networks complicates unifying liquidity and challenges decentralization.

According to Justin_Bons on X, Ethereum’s current state is being increasingly challenged by the growth and success of Layer 2 (L2) solutions. Bons argues that L2 networks are thriving at the expense of Ethereum itself.

This shift has raised concerns about Ethereum’s ability to maintain high fee revenue, as L2s continue to see record highs in usage and fees. Notably, Bons suggests that this dynamic has created a parasitic relationship between Ethereum and L2s , as the latter lobby to keep Ethereum’s capacity limited.

Impact of EIP-4844 and Fee Revenue Decline

The implementation of EIP-4844, or Proto-Danksharding, has a big effect on Ethereum’s fee income. According to Bons, fee revenue has drastically decreased following the deployment of this Ethereum Improvement Proposal , making it impossible for the fee burn rate to keep up with inflation. 

Ethereum’s inflation rate has increased as a result, since L2s are now collecting a sizable share of the fees that would have otherwise supported Ethereum’s deflationary features. The cryptocurrency industry is divided over this change in fee distribution, with some observers contending that L2s are helping Ethereum scale successfully rather than taking advantage of it.

Fragmentation of the Ethereum Ecosystem

Bons also highlights the fragmentation within the Ethereum ecosystem , driven by the rise of competing L2 networks. He argues that this fragmentation is breaking up liquidity and composability, making it difficult to unify the ecosystem under a single scalable solution. 

Furthermore, the growing influence of centralized L2s raises concerns about the decentralization narrative that initially justified the L2-centric scaling approach. Bons suggests that this centralization has led to a form of capture within Ethereum’s development, with centralized decision-making processes dominating the network’s future direction.

The dominance of L2 solutions has made a return to Layer 1 (L1) scaling increasingly challenging. Bons contends that any attempt to scale Ethereum’s L1 with new technology could potentially disrupt the L2 networks, leading to a crash in their token and equity prices .