Ethereum is located in the middle of a paradox. Even when Ether held record highs at the end of August, the decentralized financial activity (Defi) on the Layer-1 (L1) of Ethereum were filled in compared to its peak at the end of 2021. The reimbursements collected on Mainstet in August, only $ 44 million, a decrease of 44% compared to the previous month.
In the meantime, low-2 (L2) networks such as arbitrum and base booming, with $ 20 billion and $ 15 billion in total value (TVL) respectively.
This divergence raises a crucial question: Can L2S can be able to kidnibizing the defi activity of Ethereum, or is the ecosystem evolving into a multi-layered financial architecture?
AJ Warner, the Chief Strategy Officer of Offchain Labs, the developer company behind Layer-2 Arbitrum, claims that the statistics are more nuanced than just Layer-2 Defi Chipping at the layer 1.
In an interview with Coindesk, Warner said that it is missing exclusively on TVL de Punt, and that Ethereum is increasingly functioning as Cryptos ‘Global Settlement Layer’, a basis for high -quality issue and institutional activities. Products such as Franklin Templeton’s tokenized funds or BlackRock’s buzzl -product launch directly on Ethereum L1 -activity that is not fully recorded in Defi statistics but underlines the role of Etheum as the foundation of crypto finance.
Ethereum as a low-1 blockchain is the safe but relatively slow and expensive basic network. Low-2s are scale networks that are built on top of it, designed to process transactions faster and with a fraction of the costs before they eventually return to Ethereum for Security. That is why they have become so attractive for both traders and builders. Metrics such as TVL, the amount of crypto that is deposited in Defi protocols, emphasize this shift, because the activity is moved to L2S where lower costs and faster confirmations make the daily Defi much more practical.
Warner compares the place of Ethereum in the ecosystem for a wire transfer in traditional finances: trusted, secured and used for large -scale regulations. Everyday transactions, however, migrate to L2S – De Venmos and PayPals or Crypto.
“Ethereum would never be a monolithic blockchain with all the activities that happen,” Warner told Coindesk. Instead, it is intended to anchor security and at the same time enable rollups to perform faster, cheaper and more diverse applications.
Low 2S, which have exploded in recent years because they are seen as the faster and cheaper alternative to Ethereum, make whole categories Defi possible that do not work so well on Mainstet. Fast trade strategies, such as arbitration price differences between trade fairs or the execution of eternal futures, do not work well on the slower blocks of 12 seconds of Ethereum. But on Arbitrum, where transactions close within a second, the same strategies become possible, Warner explained. This is clear, because Ethereum has had fewer than 50 million transactions in the last month compared to the 328 million transactions of BASE and the 77 million transactions of arbitrum, according to L2Beat.
Builders also see L2S as an ideal test soil. Alice Hou, a research analyst at Messari, pointed to innovations such as the hooks of Uniswap V4, adjustable functions that can be repeated much cheaper on L2S before they go mainstream. For developers, faster confirmations and lower costs are more than a convenience: they expand what is possible.
“L2S offers a natural playground to test these kinds of innovations, and as soon as a hook breakout popularity reaches, it can attract new types of users who deal with Defi in ways that were not possible on L1,” said Hou.
But the shift is not just about technology. Liquidity providers respond to incentives. Keep saying that data demonstrating that smaller liquidity providers are increasingly preferable to L2S, where yield stimuli and lower slips returns. Larger liquidity providers, however, still cluster on Ethereum, who prioritize the security and depth of liquidity above greater yields.
Aave TVL (Messari Dashboard/ Alice Hou)
It is interesting that, while L2S records more activity, flagship Defi protocols such as Aave and Uniswap are still leaning on the main network. Aave has consistently kept around 90% of his TVL on Ethereum. With Uniswap, however, there has been an incremental shift to L2 activity.
Uniswap L2 activity (Dune Dashboard/ Alice Hou)
Another factor that speeds up the L2 acceptance is user experience. Wallets, bridges and Fiat in the driveways are increasingly sending newcomers directly directly to L2S, said Hou. Ultimately, the data suggests that the L1 versus L2 debate is not zero-sum.
From September 2025, about a third of L2 TVL will still be bridged from Ethereum, another third has been native and the rest will be via external bridges.
“This mix shows that although Ethereum remains an important source of liquidity, L2s also develop their own indigenous ecosystems and attract cross-chain assets,” said Hou.
As a base layer, Ethereum seems to be able to cement itself as the secure settlement engine for global finances, while rollups such as arbitrum and base appear as implementation strokes for fast, cheap and creative Defi applications.
“Most payments I use, something like Zelle or PayPal … But when I bought my house, I used a thread. That is somewhat parallel to what happens between Ethereum Layer One and Layer Twos,” said Warner of Offchain Labs.
Read more: Ethereum Defi is lagging behind, even if Ether Price Record Highs crosses
