Ethereum Layer 2 Networks Face Consolidation as Demand Shifts Toward Real-World Applications

The Ethereum layer-2 ecosystem is entering a new phase as growing competition and changing user demand force many blockchain projects to rethink their strategies. While some smaller networks have struggled to attract users and liquidity, industry experts say this does not mean layer-2 technology is failing.

The debate gained momentum after Zero Network announced it was shutting down, adding to concerns that Ethereum’s layer-2 landscape has become overcrowded. At the same time, Ethereum co-founder Vitalik Buterin has encouraged developers to reconsider long-term scaling plans, while several projects have shifted their focus away from being general-purpose blockchains.

Ben Fisch, co-founder and CEO of Espresso Systems, believes the industry is experiencing consolidation rather than decline.

“There were way too many general-purpose layer twos,” Fisch said, arguing that many networks offered similar services without clear differentiation.

User Activity Concentrated Among a Few Networks

Data shows that activity remains heavily concentrated among leading layer-2 platforms. Base and Arbitrum currently account for more than 80% of decentralized finance (DeFi) value locked across Ethereum layer-2 networks.

Meanwhile, several smaller projects have struggled to maintain momentum. Networks including Linea, World Chain, Starknet and Mantle have recorded significant declines in bridge deposits over recent months. Linea’s deposits, for example, dropped from $976 million in November 2025 to $367 million by May 2026.

Former Messari research analyst Alice Hou said long-term success depends on generating enough user activity, developer engagement and demand for blockspace.

“Without enough blockspace demand, user activity or developer traction, there is little reason to continue maintaining an L2,” Hou said.

Lower Costs Make Launching Networks Easier

The economics of operating a layer-2 network have improved significantly since Ethereum’s Dencun upgrade in 2024. The upgrade reduced data availability costs through the introduction of blobs, making it cheaper for operators to run rollup-based networks.

However, experts say lower operating costs have not solved the bigger challenge of attracting users.

According to Hou, launching a network has become easier, but maintaining meaningful demand remains difficult in an increasingly competitive market.

Future Growth May Come From Specialized Use Cases

Industry observers believe the next generation of successful layer-2 networks will likely focus on specific applications rather than serving as general-purpose blockchains.

Areas such as payments, stablecoins, tokenized assets and financial services are increasingly seen as stronger use cases. Coinbase’s Base network is often cited as a successful example because it benefits from an existing user base and strong integration with Ethereum’s broader ecosystem.

As the market matures, analysts expect fewer general-purpose chains and more specialized networks tied to real businesses, financial products and established communities. The result could be a smaller but stronger Ethereum layer-2 ecosystem focused on practical adoption rather than network proliferation.