Binance: "Ethereum's L2 Expansion Strategy Backfires, Value Declines"

An analysis has emerged suggesting that Ethereum's (ETH) pursuit of a Layer 2 expansion strategy could negatively impact Ethereum's price.

According to Cointelegraph on the 16th (local time), Binance Research reported that "Ethereum is pursuing a method to expand the mainnet and reduce transaction fees through Layer 2," but also evaluated that "L2 blockchains are ultimately threatening Ethereum's position. It's a double-edged sword that could negatively affect Ethereum's price."

In particular, it is pointed out that the value of the Ethereum network itself is decreasing. The report stated, "Ethereum's value is declining due to relatively slow transactions, reduced fees and developer dispersion due to L2 growth, and liquidity dispersion," adding that "the trading volume and fees of decentralized exchanges (DEX) are also being caught up by Solana (SOL) and Binance Chain (BNB)."

Furthermore, it is predicted that the decline in Ethereum's value may continue. Although Ethereum's roadmap includes upgrades for reducing transaction costs and preparing long-term incentives, the two upcoming major upgrades are focused on L2 network integration and data availability expansion. Therefore, it is explained that immediate problem-solving is difficult, and in the short term, Ethereum's value will continue to decline.

Finally, Binance added, "For Ethereum to coexist with L2, it needs to redefine its incentive structure through methods such as sharing fees," and "continuing development centered on based rollups that can generate more fees than L2 could be a good approach."