Companies May Not Need Their Own Layer 2 Networks, Expert Warns
A growing trend among businesses to launch their own Ethereum layer 2 networks may be unnecessary for most companies, according to Paul Brody, Global Blockchain Leader at EY. In an interview with CoinDesk, Brody stated that only a select few would benefit from creating their own layer 2, citing the need for significant transaction volume and customer demand.
The number of layer 2 networks has surpassed 150, with several companies, including Robinhood, announcing plans to launch their own networks in recent months. However, Brody warned that most businesses may not be able to justify the costs and complexity associated with creating a custom layer 2 network.
"Most companies don't need their own layer 2," Brody said. "They can just use one of the existing ones, like Optimism or Polygon. Unless you have a huge volume of transactions and your customers can't connect directly to Ethereum, it's not worth the effort."
Brody's comments come as the market for layer 2 networks continues to grow, with more companies exploring the benefits of decentralized finance (DeFi) and non-fungible tokens (NFTs). However, the expert warned that launching a custom layer 2 network can be a costly and time-consuming process.
"Layer 1 networks are already crowded and competitive," Brody explained. "Adding another one is just going to make it harder for everyone else. Unless you have a unique value proposition or a large user base, it's not worth the investment."
The trend of companies launching their own layer 2 networks has been driven by the desire to reduce transaction costs and increase scalability on the Ethereum network. However, Brody argued that this approach may not be the most effective solution for most businesses.
"Companies are trying to solve a problem that doesn't exist," Brody said. "The existing layer 2 networks can handle the demand. What companies need is better integration with their own systems and more user-friendly interfaces."
As the market continues to evolve, it remains to be seen whether companies will continue to invest in custom layer 2 networks or opt for existing solutions. One thing is certain: only a select few will benefit from creating their own layer 2 network.
Background
The Ethereum network has been experiencing high transaction fees and congestion in recent months, leading some businesses to explore alternative solutions. Layer 2 networks, which run on top of the Ethereum network, offer a way to increase scalability and reduce costs. However, launching a custom layer 2 network requires significant investment and technical expertise.
Additional Perspectives
Industry experts agree that Brody's comments highlight the need for companies to carefully consider their options before investing in a custom layer 2 network.
"Companies should focus on integrating with existing layer 2 networks rather than trying to create their own," said John Lee, CEO of blockchain firm, Chainlink. "It's a more cost-effective and efficient solution."
Current Status and Next Developments
As the market continues to evolve, it remains to be seen whether companies will continue to invest in custom layer 2 networks or opt for existing solutions. One thing is certain: only a select few will benefit from creating their own layer 2 network.
In related news, several companies have announced plans to launch their own layer 2 networks in the coming months, including Robinhood and FTX. However, it remains to be seen whether these efforts will pay off or if companies will opt for existing solutions instead.
*Reporting by Coindesk.*
