In 2025 , the Ethereum Foundation made a decision that shocked the entire industry: no longer betting all on the development path of Layer 2, but returning to the expansion kit mainnet itself.
This seemingly simple strategic adjustment actually constitutes a dimensionality reduction attack on the entire Layer 2 ecosystem. Just like a Michelin restaurant suddenly announced that it would cut prices to start a price war with a street shop, Layer 2 projects found themselves not only competing with their peers, but also directly confronting the "big brother" Ethereum mainnet.
1. The bleak situation: shrinking market and Base monopoly
Ethereum transaction fees plummet
Data doesn’t lie. Let’s take a look at the changes in Ethereum’s transaction fee income:
- Peak in 2021: Ethereum’s monthly revenue is $1.83 billion, and annualized revenue exceeds $20 billion
- Now in 2025: Annualized revenue is only $670 million, down 73% from its peak
It’s like going from a shopping mall that makes a lot of money to a street shop with few customers. Even more terrible is, where did all these users go? The answer is Solana and Tron.
In terms of fee income, Solana now holds 38% of the market share, while Ethereum only has 25%. The former "second dragon" status is in jeopardy.
Base's absolute dominance
In this shrinking Layer 2 market, a "monopolist" has emerged, Base.
Base alone accounts for 67% of Layer 2 transaction fees. This means that in a small pond, the largest fish eats two-thirds of the food, leaving dozens of fish to compete for the remaining one-third.
Arbitrum and Optimism, the former leaders in Layer 2, are now ranked second and third, with 15% and 4% of the market share respectively.
Other Layer 2 Misfortunes
Other Layer 2 data is even more shocking:
- March 2024: Other Layer 2 projects total revenue of $53.8 million
- May 2025: Total revenue plummets to $960,000
- With a drop of 98%, one can imagine the days ahead for these projects.
2. Valuation Bubble: Behind the Absurd Numbers
If we use traditional financial valuation methods to look at Layer 2 projects, we will find an even more absurd reality.
Traditional Valuation vs Layer 2 Valuation
In the traditional investing world:
- Mature technology companies: PS ratio (price-to-sales ratio) is usually 5-15 times
- High growth companies: PS ratio may reach 20-30 times
The reality of Layer 2 is:
- Median PS ratio: 1,447x
- Average PS ratio: 3,481 times
Specific case analysis
Swell Project:
- Market value: $108 million
- Price-to-sales ratio: 17,500
- Meaning: Investors will have to wait 17,500 years to get their money back
Notcoin Project:
- Market value: $1.179 billion
- Price-to-sales ratio: 14,700
Arbitrum Project (relatively cheap star project):
- Market value: $3.82 billion
- Annualized profit: $11 million
- PE ratio: 347 times
In comparison, Apple's PE ratio is about 30 times and Tesla's is about 50 times.
A more cruel reality
From the financial data, Arbitrum has:
- Total revenue: $111 million
- Total expenditure: $238 million
- Net loss: $127 million
In other words, it has burned through more than $120 million to gain its current 15% market share.
3. Three Paths to Survival
Faced with such a grim situation, where should Layer 2 projects go? The industry has summarized three possible ways to survive:
The first way: hug thighs (partner mode)
Success story: Optimism and Base collaboration
This is the most typical "clinging to the thigh" strategy. When Coinbase launched Base, it chose to build on OP's technology stack and promised to share part of the revenue.
Cooperation results:
OP revenue grows from $9.8 million in 2023 to $23.5 million in 2024, with 74% coming from Base.
The price paid:
- OP gave Base up to 118 million OP tokens
- At the time, it was worth $188 million
- Base has only brought OP $16.9 million in revenue so far
Is this a good deal? In the short term, it is "winning face but losing substance", but in the long term, if the Layer 2 pie can grow bigger, this investment will not be a loss.
Difficulty in replication: Other projects have tried to replicate Base's success, but with dismal results:
- Sonic by Sony: $1.1 million in revenue in 6 months
- Ink by Kraken: $180,000 in revenue in 6 months
- In comparison, Base had revenue of $52 million during the same period.
The second way: Be the most professional in a niche field (specialization route)
Success Story: Hyperliquid
Hyperliquid specializes in decentralized trading and has generated $70.2 million in fees in the past 30 days, exceeding the total of the entire Layer 2 ecosystem.
The key point is: Hyperliquid first created a successful product and then had a chain, instead of having a chain first and then finding product-market fit like most projects.
Other specialization attempts:
- Arbitrum's Stylus: Introducing a Faster Programming Language
- World Chain: Specialized in preventing robots
- Megaeth: Pursuing ultra-high performance of 100,000 transactions per second
- Immutable: Specializing in games
- Aztec: Specializing in privacy protection
Challenge: Not only must the technology be strong, but it must also attract enough users and developers. Many technologically advanced projects in history have failed due to poor marketing.
The third way: Bitcoin
This may be the most imaginative path.
Opportunities:
- Bitcoin scripting language is complex and does not support smart contracts
- All DeFi applications are not possible on Bitcoin
- The Bitcoin community is more concerned with security and stability and has little interest in adding features
- This creates a unique opportunity for Bitcoin Layer 2: no competitive pressure from the main chain
Obvious advantages:
- You can enjoy the liquidity of Bitcoin's market value of several trillion US dollars
- The competitive environment is relatively relaxed
- Customer acquisition costs may be lower
status quo:
- There is no Bitcoin Layer 2 that currently dominates
- The amount of Bitcoin bridged to each Layer 2 is very small, mostly less than 10% of the total
- This is an untapped gold mine.
Actual action: Starknet has announced that it will become the first Layer 2 to support both Ethereum and Bitcoin settlement. Although the technical challenges are huge, many Bitcoin Layer 2s are now trying to be compatible with both Ethereum and Bitcoin ecosystems.
4. Why does Ethereum "betray" Layer 2?
Back to the original question: Why did the Ethereum Foundation make such a strategic adjustment?
Core reason: Business model
Layer 2 does not bring enough income to Ethereum. Although Layer 2 needs to "pay rent" to Ethereum, this rent is far from making up for the loss of Ethereum mainnet transaction fees.
Competitive pressure
Ethereum is facing unprecedented competitive pressure:
- Solana, Aptos, Sui and other Layer 1 are developing rapidly
- Market share is being eroded
- Business models must be rethought
Token Economics
Layer 2 issues its own tokens, reducing the demand for ETH. Without the rigid demand to pay gas fees, the value support of ETH mainly relies on DeFi, but stablecoins are a better choice in DeFi.
5. Enlightenment and Outlook
Implications for investors:
- Focus on projects with strong adaptability: projects that can quickly adjust strategies and find new growth points are more promising
- Beware of valuation bubbles: Use traditional valuation methods to examine the true value of projects
- Focus on cash flow: Is the project sustainable and profitable?
Implications for the industry:
- Technology is not the only thing: Product-market fit and operational capabilities are equally important
- Specialization is the trend: General competition is becoming increasingly fierce, and specialization may be the way out
- Emerging market opportunities: Emerging markets such as the Bitcoin ecosystem may contain opportunities
6. Future Outlook
The story of Layer 2 is far from over. Just like Netflix’s shift from DVD rental to streaming, Amazon’s transformation from an online bookstore to a cloud computing giant, and Apple’s development from a computer company to an ecosystem, those who can adapt to change are the ultimate winners.
The key is to find a unique value proposition. If there are still Layer 2 projects that think they can survive simply by earning fees, I can only say "haha".
The only constant is change. In this fast-iterating technology industry, only teams with foresight, vision, and the ability to see future development trends can stand out in the next round of bull market.
The survival crisis of Layer 2 may be the beginning of the next evolution.
