When Zero Network announced it was shutting down last month, the reaction across crypto was tired: Another Ethereum layer-2 just bit the dust.
The shutdown joined a growing list of struggling rollups and came amid renewed debate over whether Ethereum’s sprawling layer-2 ecosystem has become too crowded. At the same time, Ethereum creator Vitalik Buterin has urged developers to rethink the network’s long-term scaling roadmap, while several major projects have shifted away from marketing themselves as general-purpose blockchains and toward more focused applications in payments, stablecoins and tokenized assets.
For many observers, the development has revived a familiar question: Has Ethereum’s sprawling layer-2 ecosystem become too crowded?
However, industry participants argue the opposite.
“What you have to recognize is that anywhere someone would run a smart contract on an existing blockchain, someone could just as easily run a layer two,” said Ben Fisch, co-founder and CEO of Espresso Systems. “We are in a consolidation phase for general layer twos, not layer twos in general.”
Ethereum layer-2s exploded over the past several years as improvements in rollup technology dramatically reduced the cost and complexity of launching new chains. Rollups work by processing transactions from Ethereum’s main blockchain, aggregating hundreds of them, and then periodically sending compressed transaction data back to Ethereum for settlement and security. The model allows applications to offer faster transactions and lower fees while still relying on Ethereum as the ultimate source of trust.
The result was a stream of networks built using infrastructure stacks like Optimism’s OP Stack, Arbitrum Orbit, and zkSync. But while launching a chain became easier, attracting users proved much more difficult.
“There were way too many generic layer twos that frankly don’t make sense as a product because there’s no reason to have many, many versions of the same thing,” Fisch said.
The numbers support that view. Today, activity across Ethereum’s layer-2 ecosystem remains highly concentrated among a handful of networks. Base and Arbitrum alone account for more than 80% of Layer-2 DeFi total value locked (TVL), according to DefiLlama data.
That concentration has only become more apparent as smaller chains struggle to maintain liquidity. Over the past six months, networks including Linea, World Chain, Starknet and Mantle have all seen declining bridge deposits. Linea’s deposits, for example, fell from $976 million in November 2025 to $367 million in May 2026, a drop of more than 60%.
“I think only a few L2s with clear financial demand will be able to sustain themselves over time,” Alice Hou, a former research analyst at Messari, told CoinDesk.
For Hou, the key question isn’t whether layer-2 technology works, it’s whether a network can generate enough activity to justify its existence.
“Without enough blockspace demand, user activity or developer traction, there is little reason to continue maintaining an L2,” she said.
Ironically, the economics of launching a rollup have never looked better. Ethereum’s Dencun upgrade, introduced in 2024, dramatically reduced the cost of sending capture data to Ethereum through blobs. According to Messari research, the cost of data availability is now only a small part of the operator expenses for many OP Stack chains.
“From an operator perspective, it’s definitely cheaper to run an L2 today,” Hou said. “The economics of launching an L2 have gotten easier, but the real challenge is still creating enough sustained demand to make the network worth running.”
That dynamic has created a paradox. The barriers to creating a blockchain continue to fall, but the barriers to attracting users continue to rise. As a result, many teams are finding that offering another Ethereum-compatible chain is no longer enough.
“People have realized that all the different general-purpose blockchains are competing with each other,” Fisch said. “If you want to be successful, you have to build out a differentiated application.”
From infrastructure to applications
The shift is already visible across the industry. Several blockchain projects that once emphasized infrastructure are increasingly focusing on payments, stablecoins, tokenized assets, and other application-specific markets. Traditional financial institutions may become some of the biggest beneficiaries.
Fisch pointed to asset managers launching tokenized money market funds, stablecoin issuers and tokenized deposit platforms as examples of companies that have clear reasons to operate on-chain. For these firms, a dedicated layer-2 can offer lower costs, greater control, and more predictable performance than deploying directly as a smart contract.
“The technology decision to run as a layer two is simply an option to run an application onchain,” Fisch said.
Hou said she agreed that distribution matters more than technology.
“Only L2s with a solid existing user base and a clear reason to benefit from blockchain infrastructure should launch their own networks,” she said.
This helps explain why exchanges remain among the strongest contenders. Coinbase’s Base has become the dominant example, leveraging the exchange’s existing customer base while integrating users into Ethereum’s broader DeFi ecosystem.
“The question shouldn’t be, ‘Can this company launch an L2?'” Hou said. “It should be: ‘Does this company already have enough distribution, financial activity and ecosystem synergies to make an L2 meaningfully useful?’
A different vision for the layer-2 landscape
The debate also reflects a deeper disagreement about what tier-2s really are. For years, Ethereum has advocated framed rollups primarily as a scaling solution for Ethereum itself.
Fisch said he sees them differently.
“I don’t see layer two as a scaling of Ethereum,” he said. “I see layer two as leveraging the existing security features of layer one.”
In that framework, Ethereum acts less as a destination and more as a settlement layer that applications can use when it makes sense.
“Ethereum is a kind of commodity that layer two can choose to use,” Fisch said.
This vision aligns with a broader trend unfolding across crypto infrastructure. Instead of competing to become the next dominant blockchain, several projects are increasingly treating blockchains as modular components that can be assembled into larger products.
If that trend continues, the future Ethereum ecosystem could look very different from what was envisioned during the rollup boom. Instead of hundreds of competing general-purpose chains vying for liquidity, the winners could be a smaller number of networks tied to specific companies, financial products, and user communities.
Read more: ‘You don’t scale Ethereum’: Vitalik Buterin issues a blunt reality check to the biggest crypto networks
