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Layer-2 Activity Drops on Most Networks but Spikes on Arbitrum

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Layer-2 Activity Drops on Most Networks but Spikes on Arbitrum

According to a recent tweet published on February 28th by Nansen, a well-known blockchain analytics firm, there has been a massive decrease in Layer-2 activity across the crypto sector. In fact, most leading networks have seen a significant decline in this type of activity lately. The only exception from the rule appears to be Arbitrum, which actually saw a major spike in this type of activity.

The Nansen tweet claims that, over the course of the last 7 days, Arbitrum saw a 12.7% increase in on-chain activities. All other networks have seen their L2 activity decrease. Over the past week, the network has had 46,200 unique active addresses active.

Analysts have noticed that Arbitrum’s figures is still significantly lower than those of other chains, despite it being the only one to see an increase, and a quite considerable one, too. Regardless, that does not change the fact that Arbitrum is the only one seeing the increase while all other networks are seeing some sort of stagnation.

Another report came from the layer two analytics platform known as L2beat, which recently reported that Arbitrum is still the industry leader when it comes to TVL, currently holding more than $3 billion, or 54.9% of the market share. Defillama published its own reports, noting that the most popular protocol on the network right now is the SushiSwap decentralized exchange, but that it is also worth noting a higher TVL for the Polygon network, which is just above $4 billion.

How do the other networks behave?

Reports have also noted a considerable growth of collateral locked on Arbitrum over the past several days. According to analysts, the collateral has seen about a 5.7% increase in days between February 25th and 28th. Meanwhile, one of the project’s biggest rival’s, a layer-2 network called Optimism, saw a decline in its own total value locked during the same few days.

Optimism owns roughly around 8% of the L2 market share, with its total value locked sitting at $444 million. However, its address activity has crashed by 17.9% in the last 7 days, while Arbitrum’s grew.

There are, of course, other layer two platforms that have seen significant activity declines recently. Polygon, for example, is one of them, according to Nansen. Nansen reported a 10.9% drop in Polygon’s activity in terms of seven-day active addresses.

Meanwhile, the network’s TVL has crashed by 15% in the last two weeks, which was actually noticed by DeFillama. Polygon is also not the only one among the big networks to see this type of activity, and to follow this pattern. Even the biggest projects, such as Binance Smart Chain and Ethereum have seen crashes of this type. BSC saw a decrease of 2.7%, while for Ethereum, it was slightly higher at 2.9%.

Why is the on-chain activity dropping?

Analysts still do not have a definitive answer regarding the market’s behavior, but most now believe that the on-chain activity on layer-2 networks is related to the dropping demand for decentralized finance. DeFi, on the other hand, is believed to have seen a drop in demand due to the retreating crypto markets in 2022, unlike what happened last year, when the markets skyrocketed.

The DeFi sector’s TVL has dropped by around 19% from its ATH, which was reached in late November 2021. Meanwhile, in mid-November, the crypto prices started crashing down, and after reaching its ATH, DeFi TVL started catching up on the change and following it.

Another theory is that this might be due to a decline in the prices of underlying assets, although this decline has been significantly steeper than that DeFi TVL crash.

Ali is a freelance writer covering the cryptocurrency markets and the blockchain industry. He has 8 years of experience writing about cryptocurrencies, technology, and trading. His work can be found in various high-profile investment sites including CCN, Capital.com, Bitcoinist, and NewsBTC.