Layer 2 Ethereum: Activity report August 2024 (Optimism, Arbitrum, Base)

September 25, 2024

In this August 2024 activity report, we look at financials, fundamental metrics and industry trends for Ethereum's Layer 2 blockchains, including Arbitrum, Base, Blast, Scroll, Optimism, Linea, Mantle, Mode, Starknet and zkSync.

Key Information

Total Value Locked (TVL) on Layer 2 networks fell by 10% in August 2024, equating to a decrease of approximately $930 million.
Networks that recently conducted token airdrops (Blast, Starknet, zkSync) significantly underperformed the sector, while projects with ongoing incentive campaigns (Scroll, Linea, and Mantle) fared better.
Scroll is the only Layer 2 network to post positive TVL growth in August (+11%), despite the overall downtrend.
The number of active addresses decreased across most Layer 2 networks, except for Base, which saw a 23% increase.

Introduction

The summer proved challenging for risk-sensitive financial markets overall. Bitcoin (BTC) fell by about 30% during the period (at the lowest point of the correction), dragging the rest of the cryptocurrency market down with it.

As is often the case in such periods, user activity on the blockchain slowed during August 2024. Whether on layer 1 networks (see our August 2024 layer 1 activity report) or Ethereum’s layer 2 networks, the metrics indicate a general slowdown.

Total Value Locked (TVL) on Layer 2 networks dropped by approximately 15% in August, even as daily transactions increased by 15%. This kind of inconsistency can be seen in certain Layer 2s, including Blast and Mantle. Despite this, the adoption of Ethereum scalability solutions continues to grow steadily.

Notably, the fees paid by Layer 2 networks to settle on Ethereum have reached historical lows, allowing them to generate increasingly significant revenues each month. In this report, we will focus on the financial and fundamental data available while also considering the most promising candidates for the coming months.

Financial Analysis of the Layer 2 Sector

Note: As of the writing of this report (September 2024), not all the studied protocols have their own token. Currently, Linea and Scroll have ongoing airdrop campaigns, while rumors remain unconfirmed for Base.

Following the 22% fall in the price of Ether (ETH) in August, all cryptocurrencies in the Layer 2 sector ended the month in the red.

The worst performances in August were recorded by Mode (MODE) and zkSync (ZK), which fell by 41% and 28.7%, respectively. On the other hand, Optimism (OP) and Mantle (MNT) fared slightly better than Ether, with performances of -10.5% and -16.5%.

Additionally, we observed that projects continued to issue a substantial number of tokens each month (+6.9% for Blast (BLAST), +11% for Starknet (STRK), and +4.6% for Arbitrum (ARB)). This mechanism naturally imposes downward pressure on these cryptocurrencies, partially explaining their underperformance.

Fundamental Analysis of the Layer 2 Sector

Total Value Locked (TVL)

Total Value Locked (TVL) on Ethereum’s Layer 2 blockchains decreased by $936 million in August 2024. The largest declines were seen on Blast, Arbitrum, and Linea, with respective losses of $368 million, $239 million, and $121 million. In contrast, Scroll was the only network whose TVL continued to grow, increasing by $67 million, or 11% compared to July.

Overall, the summer was challenging for all networks studied, except for Scroll, Linea, and Mantle, which are currently benefiting from reward campaigns. However, data shows a decline in user interest in Linea’s campaign, which has been ongoing for several months, as well as in Mantle’s, which already has its own token.

In terms of performance, TVL in August fell by 17.9% for Linea and 4.5% for Mantle. Despite these drops, the summer ended on a positive note thanks to particularly strong June and July: Mantle saw consecutive gains of 29% in June and 25% in July, while Linea grew by 87% in June and 2% in July. For Scroll, after increasing by 110% in June and 194% in July, growth continued in August with an 11% rise. However, this deceleration could signal an inflection point, possibly leading to a TVL decline by the end of the year.

Lastly, we note that Layer 2 networks that have already conducted airdrops continue to see their TVL decrease. For Blast, the token was distributed at the end of June 2024, marking the beginning of a series of negative TVL performances (-37% in July and -29% in August). A similar trend is observed for zkSync, whose token launch in June 2024 led to successive TVL declines (-11% in June, -20% in July, and -22% in August).

The only notable exception is Starknet, which distributed tokens in February 2024. Unlike others, this distribution was not presented as a final step but as the first phase of a broader distribution, particularly through incentive campaigns on other protocols within the ecosystem. Starknet’s TVL rose by 94% the month of the airdrop, then by 221% the following month, before stabilizing in May, June, and July. August marked the first truly negative month, with a 9% TVL drop.

User Activity

User activity on Ethereum Layer 2s saw a sharp slowdown over the summer of 2024. One of the most relevant metrics for measuring this is the number of unique addresses that interacted with the network at least once. After significant growth from January to June (ranging from 10% to 30% per month), the trend reversed in July (-10%) and continued to worsen in August (-9%).

Looking more closely at August’s figures, the number of active addresses decreased across all Layer 2s, except for Base. The largest declines were seen on Blast (-56%), Starknet (-48%), and zkSync (-45%), the three networks that distributed their tokens in recent months. Arbitrum is not far behind, with a 42% decline, despite a consistently positive trend since the beginning of the year.

As mentioned earlier, Base is the only Layer 2 to show growth in active addresses in August (+23%), after also posting gains in July (+55%). This trend, which runs counter to the rest of the sector, can be attributed to Base being the most actively used Ethereum Layer 2 for memecoin trading. User interest tends to decline when the cryptocurrency market slows, with only the most active traders continuing to participate in liquidity-driven moves.

Conclusion: Key Takeaways

The summer period, typically marked by low activity, combined with a stagnant cryptocurrency market, made August 2024 particularly challenging for Ethereum’s Layer 2s. On the financial side, token performances were generally negative, while on the fundamental side, both TVL and active addresses saw significant declines.

However, some networks managed to maintain or even grow their activity. Scroll and Base stand out for their resilience in this bearish context: Scroll benefited from an incentive campaign, while Base thrived thanks to a booming memecoin ecosystem. In contrast, networks that recently conducted airdrops continue to post declining metrics.

It’s important to note that, while not covered in detail in this August report, the trend observed in recent months remains unchanged. The reduction in fees for Layer 2s built on Ethereum (since the deployment of EIP-4846) continues to allow them to improve profitability and increase revenues, despite a slowdown in fundamental activity.