Layer 2 Gas Consumption Is Growing Exponentially

Layer 2s, built on Ethereum, essentially "rent" their security from the Layer 1 ETH chain. They do this in two primary ways, optimistic and ZK roll-ups, which you can read some good info about the differences on here. To rent their security, they're basically rolling up transactions into the Layer 1 chain, and paying a transaction fee in ETH to do so. This puts them in competition with everyone else who wants to use Ethereum blockspace, and enters them essentially into an auction-house, where price is based on demand. So there's 100B Gas a day, and the use cases are growing, all in competition to access that 100B. Today, you can see the last 30 day leaderboard for usage on ultrasound.money:

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30 Day Burn Leaderboards Top is Individual Applications, Bottom is Aggregated Categories (Source: Ultrasound.money)

You can see that DeFi is king of Ethereum usage, but behind the scenes, you can see that Layer 2 or l2 on the bottom graph is in full blow exponential growth. That 7,140 ETH burned over the last 30 days represents over $10 Million a month in fees and this is in a bear market.

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Now below is a graph of L2 gas usage per week, and it's a chart that's hard to ignore. Remember, there's only 700B Gas a week total! That means that this trend can't continue forever, the most this chart can hit is somewhere approaching that 700B number, it can't reach it unless all other activity stops on the chain, and it can never surpass it.

Weekly Ethereum Gas Usage (Source: https://dune.com/funnyking/L2-Gas-Consumption)

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Okay so this means one of a few things has to happen.

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- The first, is that it's possible that Layer 2 Usage ultimately fails, and that the growth we've seen is largely from aidrops and insider pumps. There's plenty of instances in crypto of this happening, so we can't just assume this trend will continue too much longer.

- Second, is that it levels off pretty fast, and reaches a sort of equilibrium with DeFi and NFTs, so that it never becomes the main drive of fees.

- Third, is that ETH scales significantly as a L1, and that all L2 space can be secured using only a small amount of L1 blockspace.

- Fourth would be that this trend continues another year or two, and becomes the driving force of gas fees.

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I think right now it's too early to gauge which L2s are going to be the winners. Starknet is the largest chain with the best looking chart, Arbitrum is in decline, ZK Sync, Base and Optimism aren't really in growth but are pretty large.

Starknet Daily Gas Usage (Source: https://dune.com/funnyking/L2-Gas-Consumption)

Arbitrum Daily Gas Usage (Source: https://dune.com/funnyking/L2-Gas-Consumption)

I'm not as bullish on L2s as I am on ETH, as I do believe these use cases all competing for security on the L1 are going to continue to grow. Whether is NFTs, Memecoins, Utility Tokens, DeFi, Transfers or Layer 2s, they're all in competition for that 100B gas. If these trends continue, ETH Layer 1 will basically become unusable for retail, as gas fees will be insanely high. Layer 1 NFTs will become worth less than the transaction fees, rendering them worthless, and DeFi on Layer 1 will become prohibitively costly. Hopefully Ethereum can scale fast enough to avoid this scenario, but it's really likely we're going to see an unusable L1 come the bullrun.

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