Arbitrum Defends Layer 2 Future as Ethereum Shifts Focus

Offchain Labs Chief Scientist Ed Felten believes layer 2 networks still have a bright future despite Ethereum's shift toward scaling its base layer.

Felten said layer 2s can fundamentally have faster response times, lower block times, and more throughput because they don't carry the same burden as Ethereum's ₱15.76 trillion ($263 billion) network. He told an interviewer at EthCC in Cannes that what Ethereum provides is both very powerful and very expensive.

The defense comes after Ethereum co-founder Vitalik Buterin criticized layer 2s in February for not properly decentralizing. Buterin said the original vision of layer 2s and their role in Ethereum no longer makes sense, and the network needs a new path. He noted some layer 2s don't want to decentralize because their customers' regulatory needs require them to have ultimate control.

Arbitrum, the layer 2 network built by Offchain Labs, holds around ₱179.77 billion ($3 billion) in DeFi protocol deposits after four years of operation. That compares to ₱4.55 trillion ($76 billion) in DeFi deposits on Ethereum itself. Felten said enterprises are increasingly building layer 2s or deploying on existing ones because the cost, scale, and security trade-offs look more attractive.

Recent months have been tough for layer 2 networks, with capital outflows and mounting criticism about their purpose as Ethereum improves its own scaling. Arbitrum was leapfrogged in DeFi deposits by the newly-launched Plasma blockchain. Felten argued that at layer 2 you can do things in the design a layer 1 couldn't hope to do, with Arbitrum's governance controlled by a Security Council of 12 members who can make emergency decisions about the network.