Flows into L1 and L2 networks help to show the hotspots of activity and differentiate between highly active and ‘dead’ blockchains

Recent flows data show a shift in the balance of several leading chains. Optimism (OP) turned into the most significant recipient of net inflows

Top L1 and L2 protocols saw a shift in the balance of several leading chains, with a focus on net asset inflows, according to the latest data from Artemis__xyz.

Optimism (OP) emerged as the most significant recipient of net inflows, primarily driven by large-scale movements of assets from Ethereum (ETH). Arbitrum (ARB) also demonstrated higher overall activity, but a lower retention of assets. Notably, both of these L2 chains attracted more than $1 billion in liquidity.

These flows indicate a shift in Ethereum usage, where the leading L1 is increasingly being utilized as a relay layer, facilitating the transfer of assets to L2 blockchains. One of the key reasons for the substantial inflows into Optimism is the expansion of the Superchain, which hosts a long list of projects in addition to the Optimism main net.

Among the projects included in the Superchain are Base, Worldcoin, Celo, and an OP BNB version. Several distributed apps (dApps), games, and DeFi protocols have already made the switch to these scalable chains, retaining significant shares of available liquidity.

Despite attempts to create other cross-chain tools, bridging remains the primary method for facilitating large-scale inflows of assets. Since bridges have limited capacity, this also means that L2 chains retain most of the bridged assets and guarantee a good level of liquidity.

In some cases, the inflows into L2 are driven by the actions of whale wallets, which can create a disparity in wealth distribution. Arbitrum is among the biggest targets of liquidity coming from Ethereum, mostly in the form of USDT tokens.

These inflows are largely limited to the top 200 wallets, which hold more than 93% of USDT wealth. While these transfers may be targeting liquidity pools, decentralized exchanges (DEXs), or other on-chain entities, they are not necessarily indicative of users taking their funds and wallets to a new chain.

Moreover, periods of peak market activity tend to coincide with more active flows to L1 and L2 chains. One of the reasons for this is the ability to find arbitrage opportunities between different protocols. In Q2, flows increased and affected more L2 chains.

Here is a snapshot of the top protocols by net flows, as highlighted by Artemis__xyz:

Top Net Flows.? @Optimism : +$1.2B? @Arbitrum : +$1.0B? @Base : +$450M4️⃣ @Injective : +$185m5️⃣ @Solana : +$175m

— Artemis (@artemis__xyz) July 31, 2024

It is important to note that the metrics of liquidity and users do not always overlap. The reason for liquidity inflows may be specific apps, vaults or lending protocols, which draw in big sums from a small user count. For some chains, high traffic coincides with low transaction value.

Networks like Ronin only drew in $153M in value, but carry the traffic of the Axie Infinity game, with more than 2.2M daily active users. Ronin almost lines up to TRON with 2.2M daily active users.

Older networks like BNB Chain still get close to Solana’s activity, due to carrying a significant part of stablecoins, as well as NFTs and tokens. However, BSC has slowed down in terms of building up its DeFi space.

Among the L2 solutions, former over-hyped projects saw the biggest outflows. Both Linea and ZKSync had net outflows close to $500M. These L2 chains promised to produce ZK-rollup solutions and become the next building hubs.

ZKSync earned its high profile through airdrop promises and the launch of the ZK token. After the incentives ran out, ZKSync was abandoned. Linea is still lagging in announcing a native token. The native token airdrop may be delayed for months, and in the meantime, liquidity is abandoning the chain.

Outflows are also affecting the older generation of chains, which boomed during the 2021 gaming bull market. Networks like Polygon and Avalanche are not enjoying the same revival in activity and liquidity. The slowdown of NFT trading and general token bridging also led to slim inflows for those chains.

BNB Chain also saw minimal net inflows, and some of the BNB assets were bridged into Solana. Part of the funds flowed into Base, which became the most important chain for Uniswap trading. Solana was a significant recipient of net flows and also became a source of liquidity for Base and Arbitrum.

The recent activity between chains was also reflected in overall bridge usage. Bridge volumes turned more consistent in Q2, moving between $170M and $300M in 24 hours. In a week, more than $1.76B in assets have been bridged between chains.