When Zero Network announced its closure last month, the reaction across crypto was weary: another layer 2 of Ethereum just bit the dust.
The shutdown joined a growing list of struggling stacks and came amid renewed debate over whether Ethereum’s sprawling Layer 2 ecosystem has become too crowded. At the same time, Ethereum creator Vitalik Buterin urged developers to rethink the network’s long-term scaling roadmap, while several major projects abandoned their marketing as general-purpose blockchains and shifted toward more focused applications in payments, stablecoins and tokenized assets.
For many observers, these developments have reignited a familiar question: Has Ethereum’s sprawling Layer 2 ecosystem become too crowded?
Industry players, however, argue the opposite.
“The thing to recognize is that wherever someone is running a smart contract on an existing blockchain, someone can also be running a layer two,” said Ben Fisch, co-founder and CEO of Espresso Systems. “We are in a consolidation phase for general purpose layer twos, not broader layer twos.”
Ethereum Layer 2s have exploded in recent years as improvements in stacking technology have dramatically reduced the cost and complexity of launching new chains. Rollups work by processing transactions off the main Ethereum blockchain, aggregating hundreds of them, and then periodically publishing the compressed transaction data to Ethereum for settlement and security purposes. The model allows applications to offer faster transactions and lower fees while relying on Ethereum as the ultimate source of trust.
The result was a flood of networks built using infrastructure stacks like Optimism’s OP Stack, Arbitrum Orbit, and zkSync. But while starting a channel has become easier, attracting users has proven much more difficult.
“There were way too many general-purpose Layer 2s, which frankly doesn’t make sense as a product because there’s no reason to have many, many versions of the same thing,” Fisch said.
The numbers support this view. Today, activity in Ethereum’s Layer 2 ecosystem remains heavily concentrated on a handful of networks. Base and Arbitrum alone account for over 80% of the total value locked (TVL) in Layer 2 DeFi, according to data from DefiLlama.
This concentration has only become more evident as smaller chains struggle to maintain liquidity. Over the past six months, networks such as Linea, World Chain, Starknet, and Mantle have all seen their bridging deposits decline. Linea’s deposits, for example, fell from $976 million in November 2025 to $367 million in May 2026, a drop of more than 60%.
“I think only a few L2s with clear financial demand will be able to sustain themselves over time,” Alice Hou, former research analyst at Messari, told CoinDesk.
For Hou, the key question is not whether Layer 2 technology works, but rather whether a network can generate enough activity to justify its existence.
“Without sufficient demand for block space, user activity, or developer traction, there is little reason to continue maintaining an L2,” she said.
Ironically, the economics of launching a rollup have never been better. Ethereum’s Dencun upgrade, introduced in 2024, has significantly reduced the cost of publishing rollup data on Ethereum via blobs. According to Messari’s research, data availability costs now represent only a small fraction of operator spending for many OP Stack channels.
“From an operator perspective, it is significantly cheaper to operate an L2 today,” Hou said. “The economics of launching an L2 have become easier, but the real challenge remains generating enough sustained demand to make the network worth operating.”
This dynamic has created a paradox. The barriers to creating a blockchain continue to fall, but the barriers to attracting users continue to grow. As a result, many teams are discovering that simply offering another Ethereum-compatible chain is no longer enough.
“People have realized that all the different general-purpose blockchains are competing with each other,” Fisch said. “If you want to succeed, you need to create a differentiated application.”
From infrastructure to applications
The change is already visible across the industry. Several blockchain projects that once focused on infrastructure are increasingly focusing on payments, stablecoins, tokenized assets, and other application-specific markets. Traditional financial institutions could become among the biggest beneficiaries.
Fisch cited asset managers launching tokenized money market funds, stablecoin issuers, and tokenized custodial platforms as examples of companies that have clear reasons to operate on-chain. For these businesses, a dedicated Layer 2 can offer lower costs, better control, and more predictable performance than direct deployment as a smart contract.
“The technology decision to operate in layer two is simply an option to run an application on-chain,” Fisch said.
Hou said she agrees that distribution matters more than technology.
“Only L2s with a strong user base and a clear reason to benefit from blockchain infrastructure should launch their own networks,” she said.
This helps explain why exchanges remain among the strongest contenders. Coinbase has become the dominant example, leveraging the exchange’s existing customer base while integrating users into Ethereum’s broader DeFi ecosystem.
“The question shouldn’t be, ‘Can this company launch an L2?'” Hou said. “It should be: ‘Does this company already have enough synergies in distribution, financial activity and ecosystem to make an L2 meaningfully useful?’”
A different view of the layer 2 landscape
The debate also reflects a deeper disagreement over what Layer 2s are really for. For years, Ethereum has advocated presenting rollups primarily as a scaling solution for Ethereum itself.
Fisch said he saw them differently.
“I don’t see layer two as scaling Ethereum,” he said. “I consider layer two to leverage the existing security properties of layer one.”
In this framework, Ethereum functions less as a destination and more as a settlement layer that applications can use when it makes sense.
“Ethereum is sort of a product that layer two can choose to use,” Fisch said.
This vision aligns with a broader trend unfolding in crypto infrastructure. Rather than competing to become the next dominant blockchain, more projects are increasingly treating blockchains as modular components that can be assembled into larger products.
If this trend continues, the future Ethereum ecosystem could be very different from that imagined during the rollup boom. Instead of hundreds of competing general channels fighting for cash, the winners could be a smaller number of networks tied to specific businesses, financial products and user communities.
Read more: “You’re not scaling Ethereum”: Vitalik Buterin issues brutal reality check to biggest crypto networks
