Ethereum Layer 2 solutions are gaining momentum. Arbitrum (ARB) and Optimism (OP), two major Layer 2 (L2) cryptocurrencies, gained significant momentum in the past day.
According to data from CoinGecko, ARB climbed to $2+, adding 13%, while OP reached $3.9+, gaining 10%. The positive trend comes amid market turbulence after confirmation of the key Bitcoin exchange-traded fund (ETF) ruling.
New Tech Makes Better Transactions
Arbitrum and Optimism are scaling solutions on Ethereum’s Layer 2 address scalability challenges by reducing gas fees and accelerating transaction speeds. This results in a smoother user experience while maintaining the security of the Ethereum root chain. These protocols belong to the Optimistic Rollup segment, employing fraud-proof security mechanisms based on scientific evidence.
Back in December, OP set a new record high of $4.1. ARB broke its key resistance level to hit a new all-time high of $2.1 earlier this year. These two ecosystems have also seen surges in total value locked (TVL). According to L2Beat, TVL on Arbitrum has skyrocketed over 400% year-to-date, surpassing $10 billion. Meanwhile, Optimism follows closely with a $5 billion TVL.
While L2 scaling solutions like Arbitrum and Optimism surged in price, Ethereum (ETH) itself rallied ahead of its next major upgrade, Dencun. The second-largest cryptocurrency surpassed $2,400, fueled further by the potential approval of a spot Ethereum ETF following the greenlight for spot Bitcoin funds.
According to data from DefiLlama, Ethereum and Arbitrum have dethroned Solana, reclaiming the top spots in DEX trading volume this week. While SOL is still more valuable than Arbitrum, ETH is flying higher at the moment.
What to Expect in 2024?
Arbitrum is heading to a token unlock event on March 16, when it releases 1.1 billion ARB tokens. As a common concern, the sudden influx of tokens could potentially lead to increased selling pressure, causing the price of ARB to drop due to increased supply. Optimism will also unlock 24.16 million OP tokens by the end of this month.
While ARB and OP may face short-term volatility, their long-term growth prospects appear promising, especially with several key events. Among these is Ethereum’s anticipated Dencun upgrade slated for Q1/2024.
Dencun will introduce EIP-4844 or Proto-Danksharding with calldata blobs and transaction calldata fees. The proposal aims to significantly reduce gas costs and transaction times on the Ethereum mainnet. As a result, optimistic rollups like Optimism and Arbitrum can enjoy lower fees and faster transactions, leading to an improved user experience and potentially attracting more activity to these platforms.
Apart from Dencun, the crypto ETF developments, and the Bitcoin halving event are other highlights that can positively impact Arbitrum and Optimism, as well as the entire crypto market.
The approval of a spot Bitcoin ETF could pave the way for other spot crypto ETFs, such as Ethereum or Ripple. If greenlit, this financial instrument would simplify the process for traditional investors to engage with prominent cryptocurrencies, offering them avenues to monitor, trade, and hold crypto through familiar stockbroker channels.
More than just accessibility, the ETF’s framework promises transparency and liquidity, which could entice institutional investors. These seasoned market participants, armed with significant capital, could unlock a flood of institutional investments into the crypto ecosystem, fostering growth and innovation.
Notably, Layer 2 scaling solutions like Arbitrum and Optimism, designed to enhance Ethereum’s efficiency and scalability, stand to benefit immensely from such an influx of institutional interest and capital. Over time, this may create more demand for ETH, as well as other tokens.
Regarding the next Bitcoin halving event, historical data paint a compelling narrative. Post-halving, Bitcoin experiences robust growth, often catalyzing a broader market uptrend. This anticipated surge in Bitcoin’s value could further incentivize developers and investors to explore and invest in Layer 2 solutions.