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The Layer 2 Adoption Crisis: Why Base Dominates While Zombie Chains Multiply

· 13 min read
Dora Noda
Dora Noda
Software Engineer

Base processes 60% of Ethereum Layer 2 transactions. Arbitrum and Optimism split most of the remainder. Together, these three networks handle 90% of L2 activity, leaving dozens of once-promising rollups operating as ghost towns with minimal users and vanishing liquidity.

The consolidation is brutal and accelerating. In 2025, most new L2 launches became zombie chains within months of their token generation events—points-fueled surges followed by rapid post-TGE collapse as mercenary capital fled to the next airdrop opportunity.

Then Vitalik Buterin delivered the final blow: "The rollup-centric roadmap no longer makes sense." With Ethereum L1 scaling faster than expected and fees dropping 99%, the original justification for most L2s—cheaper transactions—evaporated overnight.

The Layer 2 wars are over. The winners are clear. The question now is what happens to everyone else.

The Winner-Take-Most Dynamics​

Layer 2 adoption follows power law dynamics where a small number of winners capture disproportionate value. Understanding why requires examining the structural advantages that compound over time.

Network Effects Are Everything​

Successful L2s create self-reinforcing flywheels:

Liquidity begets liquidity: DEXs need deep pools to minimize slippage. Traders go where liquidity exists. Liquidity providers deposit where volume is highest. This concentrates liquidity on leading platforms, making alternatives less attractive regardless of technical merit.

Developer mindshare: Builders deploy where users are. Documentation, tooling, and community support follow developer attention. New projects launch on established chains because that's where experienced developers, audited contracts, and battle-tested infrastructure exist.

Integration momentum: Wallets, bridges, fiat on-ramps, and third-party services integrate with dominant chains first. Supporting every L2 creates overwhelming complexity. Protocols prioritize the 2-3 chains driving 90% of activity.

Institutional trust: Enterprises and funds allocate to proven platforms with track records, deep liquidity, and regulatory engagement. Base benefits from Coinbase's compliance infrastructure. Arbitrum and Optimism have years of mainnet operation. New chains lack this trust regardless of technology.

These dynamics create winner-take-most outcomes. Early leads compound into insurmountable advantages.

Base's Coinbase Superpower​

Base didn't win through superior technology. It won through distribution.

Coinbase onboards millions of users monthly through its centralized exchange. Converting even a fraction to Base creates instant network effects that organic L2s can't match.

The integration is seamless. Coinbase users can deposit to Base with one click. Withdrawals are instant and feeless within the Coinbase ecosystem. For mainstream users, Base feels like Coinbase—trusted, regulated, simple.

This distribution moat is impossible for competitors to replicate. Building a successful L2 requires either:

  1. Comparable user distribution (no other exchange matches Coinbase's retail presence)
  2. Dramatically superior technology (marginal improvements don't overcome Base's structural advantages)
  3. Specialized positioning for non-retail segments (the strategy Arbitrum and Optimism pursue)

Base captured DEX trading first (60% market share), then expanded into NFTs, social applications, and consumer crypto. The Coinbase brand converts crypto-curious users into on-chain participants at scales competitors can't reach.

Arbitrum and Optimism's DeFi Defensibility​

While Base dominates consumer applications, Arbitrum maintains strength in DeFi and gaming through:

Deep liquidity: Billions in established liquidity pools that can't easily migrate. Moving liquidity fragments markets and creates arbitrage inefficiencies.

Protocol integrations: Major DeFi protocols (Aave, Curve, GMX, Uniswap) built on Arbitrum with custom integrations, governance processes, and technical debt that makes migration expensive.

Developer ecosystem: Years of developer relationships, specialized tooling, and institutional knowledge create stickiness beyond pure technology.

Gaming focus: Arbitrum cultivates gaming-specific infrastructure with custom solutions for high-throughput game states, making it the default chain for Web3 gaming projects.

Optimism differentiates through its Superchain vision—creating a network of interoperable L2s sharing security and liquidity. This positions Optimism as infrastructure for other L2s rather than competing directly for applications.

The top three chains serve different markets: Base for consumer/retail, Arbitrum for DeFi/gaming, Optimism for L2 infrastructure. This segmentation reduces direct competition and allows each to dominate its niche.

The Post-Incentive Graveyard​

The lifecycle of failed L2s follows a predictable pattern.

Phase 1: Pre-Launch Hype​

Projects announce ambitious technical roadmaps, major partnerships, and innovative features. VCs invest at $500M+ valuations based on projections and promises. Marketing budgets deploy across crypto Twitter, conferences, and influencer partnerships.

The value proposition is always the same: "We're faster/cheaper/more decentralized than [incumbent]." Technical whitepapers describe novel consensus mechanisms, custom VMs, or specialized optimizations.

Phase 2: Points Programs and Mercenary Capital​

Months before token launch, the protocol introduces points systems rewarding on-chain activity. Users earn points for:

  • Bridging assets to the L2
  • Trading on affiliated DEXs
  • Providing liquidity to specific pools
  • Interacting with ecosystem applications
  • Referring new users

Points convert to tokens at TGE, creating airdrop expectations. This attracts mercenary capital—users and bots farming points with no intention of long-term participation.

Activity metrics explode. The L2 reports millions in TVL, hundreds of thousands of transactions daily, and rapid ecosystem growth. These numbers are hollow—users are farming anticipated airdrops, not building sustainable applications.

Phase 3: Token Generation Event​

The TGE happens with significant exchange listings and market-making support. Early investors, team members, and airdrop farmers receive substantial allocations. Initial trading sees volatility as different holders pursue different strategies.

For a brief window—usually days to weeks—the L2 maintains elevated activity as farmers complete final tasks and speculators bet on momentum.

Phase 4: The Collapse​

Post-TGE, incentives evaporate. Farmers exit. Liquidity drains to other chains. Transaction volume collapses by 80-95%. TVL drops as users bridge assets elsewhere.

The protocol enters a death spiral:

  • Reduced activity makes the chain less attractive for developers
  • Fewer developers means fewer applications and integrations
  • Less utility drives remaining users to alternatives
  • Lower token prices discourage team continuation and ecosystem grants

The L2 becomes a zombie chain—technically operational but practically dead. Some maintain skeleton crews hoping for revival. Most quietly sunset operations.

Why Incentives Fail​

Points programs and token airdrops don't create sustainable adoption because they attract mercenary users optimizing for extraction rather than value creation.

Real users care about:

  • Applications they want to use
  • Assets they want to trade
  • Communities they want to join

Mercenary capital cares about:

  • Which chain offers the highest airdrop APY
  • How to maximize points with minimal capital
  • When to exit before everyone else does

This fundamental misalignment guarantees failure. Incentives work only when they subsidize genuine demand temporarily while the platform builds organic retention. Most L2s use incentives as a substitute for product-market fit, not a supplement to it.

The EIP-4844 Double-Edged Sword​

Ethereum's Dencun upgrade on March 13, 2024, introduced EIP-4844—"proto-danksharding"—fundamentally changing L2 economics.

How Blob Data Availability Works​

Previously, L2s posted transaction data to Ethereum L1 using expensive calldata, which is stored permanently in Ethereum's state. This cost was the largest operational expense for rollups—over $34 million in December 2023 alone.

EIP-4844 introduced blobs: temporary data availability that rollups can use for transaction data without permanent storage. Blobs persist for approximately 18 days, long enough for all L2 participants to retrieve data but short enough to keep storage requirements manageable.

This architectural change reduced L2 data availability costs by 95-99%:

  • Arbitrum: gas fees dropped from $0.37 to $0.012
  • Optimism: fees fell from $0.32 to $0.009
  • Base: median blob fees hit $0.0000000005

The Economic Paradox​

EIP-4844 delivered the promised benefit—dramatically cheaper L2 transactions. But this created unintended consequences.

Reduced differentiation: When all L2s become ultra-cheap, the cost advantage disappears as a competitive moat. Users no longer choose chains based on fees, shifting competition to other dimensions like applications, liquidity, and brand.

Margin compression: L2s that charged significant fees suddenly lost revenue. Protocols built business models around capturing value from high transaction costs. When costs dropped 99%, so did revenues, forcing teams to find alternative monetization.

L1 competition: Most importantly, cheaper L2s made Ethereum L1 relatively more attractive. Combined with L1 scaling improvements (higher gas limits, PeerDAS data availability), the performance gap between L1 and L2 narrowed dramatically.

This last point triggered Vitalik's reassessment. If Ethereum L1 can handle most applications with acceptable fees, why build separate L2 infrastructure with added complexity, security assumptions, and fragmentation?

The "Rollup Excuse Is Fading"​

Vitalik's February 2026 comments crystallized this shift: "The rollup excuse is fading."

For years, L2 proponents argued that Ethereum L1 couldn't scale sufficiently for mass adoption, making rollups essential. High gas fees during 2021-2023 validated this narrative.

But EIP-4844 + L1 improvements changed the calculus:

  • ENS canceled its Namechain rollup after L1 registration fees dropped below $0.05
  • Multiple planned L2 launches were shelved or repositioned
  • Existing L2s scrambled to articulate value beyond cost savings

The "rollup excuse"—that L1 was fundamentally unscalable—no longer holds. L2s must now justify their existence through genuine differentiation, not as workarounds for L1 limitations.

The Zombie Chain Phenomenon​

Dozens of L2s now operate in limbo—technically alive but practically irrelevant. These zombie chains share common characteristics:

Minimal organic activity: Transaction volumes below 1,000 daily, mostly automated or bot-driven. Real users are absent.

Absent liquidity: DEX pools with sub-$100k TVL, creating massive slippage for even small trades. DeFi is non-functional.

Abandoned development: GitHub repos with sporadic commits, no new feature announcements, skeleton teams maintaining basic operations only.

Token price collapse: 80-95% down from launch, trading at fractions of VC valuations. No liquidity for large holders to exit.

Inactive governance: Proposal activity ceased, validator sets unchanged for months, no community engagement in decision-making.

These chains cost millions to develop and launch. They represent wasted capital, lost opportunity, and broken promises to communities that believed in the vision.

Some will undergo "graceful shutdowns"—helping users bridge assets to surviving chains before terminating operations. Others will persist indefinitely as zombie infrastructure, technically operational but serving no real purpose.

The psychological impact on teams is significant. Founders who raised capital at $500M valuations watch their projects become irrelevant within months. This discourages future innovation as talented builders question whether launching new L2s makes sense in a winner-take-most market.

What Survives: Specialization Strategies​

While general-purpose L2s face consolidation, specialized chains can thrive by serving niches underserved by Base/Arbitrum/Optimism.

Gaming-Specific Infrastructure​

Gaming requires unique characteristics:

  • Ultra-low latency for real-time gameplay
  • High throughput for frequent state updates
  • Custom gas models (subsidized transactions, session keys)
  • Specialized storage for game assets and state

Ronin (Axie Infinity's L2) demonstrates this model—purpose-built infrastructure for gaming with features mainstream L2s don't prioritize. IMX and other gaming-focused chains follow similar strategies.

Privacy-Preserving Chains​

Aztec, Railgun, and similar projects offer programmable privacy using zero-knowledge proofs. This functionality doesn't exist on transparent L2s and serves users requiring confidential transactions—whether for legitimate privacy or regulatory arbitrage.

RWA and Institutional Chains​

Chains optimized for real-world asset tokenization with built-in compliance, permissioned access, and institutional custody integration serve enterprises that can't use permissionless infrastructure. These chains prioritize regulatory compatibility over decentralization.

Application-Specific Rollups​

Protocols launching dedicated L2s for their specific applications—like dYdX's custom chain for derivatives trading—can optimize every layer of the stack for their use case without compromise.

The pattern is clear: survival requires differentiation beyond "faster and cheaper." Specialized positioning for underserved markets creates defensible niches that general-purpose chains can't easily capture.

The Institutional Consolidation Accelerates​

Traditional financial institutions entering crypto will accelerate L2 consolidation rather than diversifying across chains.

Enterprises prioritize:

  • Regulatory clarity: Base benefits from Coinbase's compliance infrastructure and regulatory relationships. Institutions trust this more than anonymous L2 teams.
  • Operational simplicity: Supporting one L2 is manageable. Supporting ten creates unacceptable complexity in custody, compliance, and risk management.
  • Liquidity depth: Institutional trades require deep markets to minimize price impact. Only top L2s provide this.
  • Brand recognition: Explaining "Base" to a board is easier than pitching experimental L2s.

This creates a feedback loop: institutional capital flows to established chains, deepening their moats and making alternatives less viable. Retail follows institutions, and ecosystems consolidate further.

The long-term equilibrium likely settles around 3-5 dominant L2s plus a handful of specialized chains. The dream of hundreds of interconnected rollups fades as economic realities favor concentration.

The Path Forward for Struggling L2s​

Teams operating zombie chains or pre-launch L2s face difficult choices.

Option 1: Merge or Acquire​

Consolidating with stronger chains through mergers or acquisition could preserve some value and team momentum. Optimism's Superchain provides infrastructure for this—allowing struggling L2s to join a shared security and liquidity layer rather than competing independently.

Option 2: Pivot to Specialization​

Abandon general-purpose positioning and focus on a defensible niche. This requires honest assessment of competitive advantages and willingness to serve smaller markets.

Option 3: Graceful Shutdown​

Accept failure, return remaining capital to investors, help users migrate to surviving chains, and move to other opportunities. This is psychologically difficult but often the rational choice.

Option 4: Become Infrastructure​

Rather than competing for users, position as backend infrastructure for other applications. This requires different business models—selling validator services, data availability, or specialized tooling to projects building on established chains.

The era of launching general-purpose L2s and expecting success through technical merit alone is over. Teams must either dominate through distribution (impossible without Coinbase-scale onboarding) or differentiate through specialization.

BlockEden.xyz provides enterprise-grade infrastructure for Ethereum, Base, Arbitrum, Optimism, and emerging Layer 2 ecosystems, offering developers reliable, high-performance API access across the full L2 landscape. Explore our services for scalable multi-chain deployment.

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