• Blast and Base have heightened competition within the Ethereum L2 space. 
• Polygon CEO sees L2 competition as bad for Ethereum. 

In the past, Ethereum’s [ETH] layer (L2s) ecosystem has been dominated by Arbitrum [ARB] and Optimism [OP]. 

However, the entry of Coinbase L2 solution Base and Blast has heightened further competition. Right now, Optimism is number four in terms of Total Value Locked (TVL).

Blast and Base are in the second and third spots, with $1.67B and $1.45B in TVL, respectively. 

L2s were designed to enhance Ethereum scalability, but the space is overheated at the moment. According to Marc Boiron, CEO of Polygon [MATIC], the cut-throat competition in L2 is “Ethereum’s biggest problem.”

Boiron stated; 

“Ethereum’s biggest problem is cannibalizing itself continuously via all L2s competing over devs, users and liquidity rather than competing outside of the Ethereum ecosystem.”

Ethereum fragmentation problem

L2s were Vitalik Buterin’s roadmap to solving the Ethereum scaling problem. However, the approach has unintentionally led to liquidity fragmentation walled off from each L2. 

Boiron sees the problem as extending to competition between users and developers, too. The overheating in the space just makes it worse. 

According to CoinShares, a digital asset manager firm, fixing the Ethereum fragmentation problem could improve user experience, share liquidity, and “bridge-less bridging.”

Some L2s have opted for interoperable roll-up protocols to address these issues. Polygon has its Aggregation Layer (AggLayer), while Arbitrum has Orbit as Optimism leverage its Superchain. 

However, the CoinShares report notes that despite these interoperable protocols, the issue still remains due to different technical approaches,

“Interoperability is still a problem, mainly fragmentation of liquidity and social coordination.”

However, other users are adamant that the aggregation layer could solve the liquidity fragmentation bit.