The Layer 2 Dilemma: Is It Worth the Hype?
In the fast-paced world of blockchain technology, the allure of creating a personalized slice of the digital pie is proving irresistible for many companies. With Ethereum being a decade old as of this past July, it’s no surprise that its robust ecosystem remains a magnet for innovation. Yet, as the trend of launching proprietary Ethereum layer 2 networks gains momentum, experts are cautioning that this route may not be as beneficial as it seems for most companies.
The Attraction of Layer 2 Networks
The idea of a layer 2 network on Ethereum is enticing, offering what appears to be a best-of-both-worlds scenario. Companies can control their own ecosystem while still benefiting from Ethereum’s extensive network and integration capabilities. This means setting your own rules and pricing structures—appealing for enterprises seeking autonomy.
However, the landscape is already crowded, with over 150 layer 2 networks in existence, many of which are centralized and tied to a single enterprise. Robinhood’s recent announcement to launch its own layer 2 network underscores the trend, suggesting that financial giants see potential in these networks. The rationale is clear: layer 2 networks offer significant economic advantages over creating a new layer 1 blockchain from scratch. For example, Coinbase’s Base network, in June 2025, generated $4.9 million in fee revenue while spending a mere $50,000 on settlement fees, highlighting the economic viability of layer 2 networks.
The Costs and Benefits
Launching a layer 2 network isn’t without its costs. Networks must purchase transaction processing space—known as blob space—on the Ethereum mainnet to finalize transactions. While these costs are generally lower than establishing a new network, they spark debates within the Ethereum ecosystem about fee structures. There’s an ongoing discussion about whether these fees are too low, potentially transferring benefits from layer 1 stakeholders to layer 2 networks. Even with a possible fee increase, the value proposition of scaling with layer 2 remains appealing.
The central question remains: does your company need its own layer 2 network? The answer, for most, is probably no. The true value of a blockchain ecosystem lies in its ability to facilitate cooperative work without a single controlling entity. This decentralized nature is particularly beneficial for industries like manufacturing, where companies work with various suppliers and customers on a level playing field.
When Does a Layer 2 Make Sense?
For firms capable of aggregating significant transaction volumes, particularly in financial services, a proprietary layer 2 network might make sense. Companies like Coinbase, Kraken, and now Robinhood, with extensive retail customer bases, can leverage these networks effectively. Similar to how brokerage firms once coveted seats on the New York Stock Exchange, having a layer 2 network could become a status symbol in the financial industry.
However, for most companies, the optimal approach may involve connecting directly to Ethereum or utilizing existing open layer 2 networks. This strategy is often more cost-effective and private compared to running your own network or relying on aggregators that could mark up transaction costs and monitor transaction flows.
The Temptation of Control
Despite the practical challenges, the desire to “control your destiny” and potentially “tax the ecosystem” is a strong motivator for many businesses. The history of private blockchains serves as a cautionary tale—many launched with high hopes, only to falter. Yet, the allure of centralized layer 2 networks as a middle ground is difficult to resist for some. Unlike private chains, which were largely doomed to fail, a few centralized layer 2 networks may succeed. But, history has a way of repeating itself, often because we fail to learn from past mistakes.
As companies weigh the decision to launch their own layer 2 networks, they should ask themselves three critical questions: Can they aggregate significant transaction volumes? Is transacting on-chain central to their business model? Does their approach offer a unique value proposition? For most, the answer to these questions will steer them away from launching a proprietary network, towards leveraging the existing strengths of Ethereum’s ecosystem.
In the end, the layer 2 craze may prove to be a valuable lesson in understanding the balance between control and collaboration in the blockchain world. As the landscape continues to evolve, companies will do well to heed the lessons of the past and focus on sustainable, cooperative strategies that leverage the full potential of decentralized technologies.
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
