Op-Ed: Many companies are proposing creating an L2, but is it L2 overload? Why L2s will experience a proliferation of L2s, but maybe not in the way you expected.
2023 showed us a burgeoning world of Layer 2 (L2) solutions, and with numerous companies considering launching their own L2 chains, there are no signs of this trend slowing down anytime soon. L2s are finding their own unique footing within an interoperable open-source ecosystem.
With most products in the world, there are starter and advanced versions. For example, compare a one-click button Nespresso machine to a Breville barista-style espresso maker or the basic Shopify storefront creator versus the advanced version. In blockchain, this concept translates to a crucial decision: whether to deploy on an existing network or build a custom chain.
When Is It Right To Build an L2?
The rule of thumb for success hinges on certain qualities, such as having an established product-market fit, generating significant transaction volume, or owning a well-known intellectual property that can sustain its own chain without competing for block space.
The choice is strategic. For many, launching on a shared mainnet is the prudent first step. Existing L2s, equipped with everything from stablecoins to wallet integrations, offer a ready-to-deploy environment.
In situations where a web3 app has the true product-market fit, already generates regularly high volume, and is on the cusp of explosive growth, building a custom L2 could be the ideal choice. Partnerships also play a crucial role. Heavyweight partnerships help to create a magnetic L2 destination by leveraging immense user bases to encourage swift application growth.
The same goes for truly unique intellectual property that can be predicted to generate considerable consistent transaction volume or does not rely on other applications to succeed. It’s always prudent to consider a dapp’s or ecosystem's specific use case. A single application like Zora can leverage the network effects around its marketplace to build an ecosystem chain for other applications that are all building around the cause of having more creators onchain.
How To Become a Successful L2 Instead of a Ghost Chain
Advancement of technology has significantly simplified the deployment of individual rollup chains. With the aid of Rollups-as-a-Service (RaaS) providers, teams can now easily launch and maintain their own rollup chains - especially as these teams continue to reduce both startup and ongoing operational costs.
However, despite these lowered barriers to entry, the success of an L2 chain still hinges on several critical factors. Developing a compelling value proposition to attract users is imperative. This could involve offering a unique user or developer experience tailored to specific market niches or local needs. It is also important to understand both the profitability model of an L2 chain and the capital requirements for maintaining a team and necessary chain services. Needless to say, custom chains are never the cheapest path.
Zoom Out to Zoom In
The future of blockchain is one of many custom L2 chains, offering faster transactions, reduced fees and greater scalability. Imagine this transforming Picture Ethereum morphing from one clogged highway into a vast network of unclogged superhighways. Each lane (or L2 chain) would be able to handle traffic (or transactions), and vehicles (or data) would be able to switch between them as needed. But even as this future emerges we must look to the teams building here and now. Should they build on existing chains or create their own? The latter takes the right tools, guidelines and backing. But it unlocks customization, control and innovation potential down the road.
The year 2023 presents exciting possibilities for L2 solutions as integration with interoperable open-source ecosystems enters a pivotal phase. The strategic decision between deploying on an existing network or building a custom L2 revolves around product-market fit, transaction volume and impactful partnerships.
Rollups-as-a-Service (RaaS) providers ease entry barriers, but success demands a compelling value proposition and financial prudence. Looking ahead, 2024 marks the rise of interconnected custom L2 chains, transforming blockchain into an efficient network of superhighways. As we venture into this exciting future, the narrative around L2s is rapidly evolving from a mere technological advancement to a cornerstone of mass adoption and integration.
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