When Zero Network announced it was shutting down last month, the reaction across the cryptocurrency world was one of exhaustion: another Ethereum layer 2 has just bit the dust.
The closure joined a growing list of distressed accumulations and came amid renewed debate over whether Ethereum’s extensive Layer 2 ecosystem has become too saturated. At the same time, Ethereum creator Vitalik Buterin has urged developers to rethink the network’s long-term scaling roadmap, while several major projects have stopped marketing themselves as general-purpose blockchains and have focused on applications more focused on payments, stablecoins and tokenized assets.
For many observers, the developments have reignited a familiar question: Has Ethereum’s expanding Layer 2 ecosystem become too saturated?
Industry participants, however, argue otherwise.
“What you have to recognize is that anywhere someone is running a smart contract on an existing blockchain, someone could equally 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 two, not general layer two.”
Ethereum Layer 2s have exploded in recent years as improvements in cumulative technology have dramatically reduced the cost and complexity of launching new chains. Rollups work by processing transactions outside of the main Ethereum blockchain, pooling hundreds of them, and then periodically publishing compressed transaction data to Ethereum for settlement and security. The model allows applications to offer faster transactions and lower fees while still 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 launching a chain became easier, attracting users proved much more difficult.
“There were too many general-purpose layer twos, 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 that view. Today, activity across the entire Ethereum layer 2 ecosystem remains highly concentrated in a handful of networks. According to data from DefiLlama, Base and Arbitrum alone represent more than 80% of the total value locked (TVL) of Layer 2 DeFi.
That 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 seen a decline in bridging deposits. Linea 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 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,” he said.
Ironically, the economics of launching a rollup have never looked better. Ethereum’s Dencun upgrade, introduced in 2024, dramatically reduced the cost of publishing cumulative data to Ethereum via blobs. According to Messari research, data availability costs now represent only a small fraction of operator expenses for many OP Stack chains.
“From an operator’s perspective, it is definitely cheaper to operate an L2 today,” Hou said. “The economics of launching an L2 have become simpler, but the real challenge remains generating enough sustained demand to make the network worth operating.”
That dynamic has created a paradox. The barriers to creating a blockchain continue to fall, but the barriers to attracting users continue to rise. As a result, many teams are finding that simply offering another Ethereum-compatible chain is no longer enough.
“People have realized that all the different general-purpose blockchains compete with each other,” Fisch said. “If you want to be successful, you need to create a differentiated application.”
From infrastructure to applications
The change is already visible throughout the industry. Several blockchain projects that once emphasized infrastructure are increasingly focusing on payments, stablecoins, tokenized assets, and other application-specific markets. Traditional financial institutions may become some of the biggest beneficiaries.
Fisch pointed to asset managers launching tokenized money market funds, stablecoin issuers, and tokenized depository platforms as examples of companies that have clear reasons to go on-chain. For those businesses, a dedicated Layer 2 can offer lower costs, greater control, and more predictable performance than direct implementation as a smart contract.
“The technology decision to run as layer two is simply a choice to run an application on chain,” Fisch said.
Hou said he agreed that distribution matters more than technology.
“Only L2s with a strong existing user base and a clear reason to benefit from blockchain infrastructure should launch their own networks,” he said.
That helps explain why exchanges remain among the strongest candidates. 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 business already have enough distribution, financial activity and ecosystem synergies 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 actually for. For years, Ethereum has defended rollups framed primarily as a scaling solution for Ethereum itself.
Fisch said he sees them differently.
“I don’t consider layer two to scale to Ethereum,” he said. “I view layer two as taking advantage of the existing security properties of layer one.”
In that framework, Ethereum functions less as a destination and more as a settlement layer that applications can use when it makes sense.
“Ethereum is kind of a commodity that layers two can choose to use,” Fisch said.
That view aligns with a broader trend playing out across crypto infrastructure. Instead of competing to become the next dominant blockchain, more and more projects are treating blockchains as modular components that can be assembled into larger products.
If that trend continues, the future Ethereum ecosystem may look very different from the one imagined during the cumulative boom. Instead of hundreds of general-purpose chains competing for liquidity, 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 Throws Hard Reality Test to Largest Crypto Networks
