Rollup-Centric Future Has Gone Too Well: Tokens Now Process More Transactions Than Ethereum Itself

Tokens for major rollups, also known as layer 2 blockchains, or L2s, have had a miserable year: Arbitrum is down 66% since January 1; Optimism has fallen 56% in that span

Ethereum has shifted its focus towards layer 2 blockchains, also known as L2s, in an effort to improve scalability and reduce transaction costs on its network. Among the most prominent L2s are Arbitrum, Optimism, Starknet, ZkSync, and Mantle. These L2s have experienced varying degrees of success in attracting users and processing transactions.

However, despite the overall growth and adoption of L2s, the tokens associated with these L2s have largely underperformed in 2024. While crypto markets have enjoyed a strong year, with the total market value of all tokens surging by more than 46%, L2 tokens have faced a different fate.

According to data from CoinGecko, Arbitrum’s token (token:arbitrum) has seen a significant decline of 66% since January 1. Optimism’s token (token:optimism) has also fallen by a substantial 56% during the same period. Starknet’s token (token:starknet) has faced the steepest decline among major L2 tokens, plummeting by a whopping 84%.

ZkSync’s token (token:zksync) has also experienced a notable decline of 55% since January 1. In contrast, Mantle’s token (token:mantle) has seen a more modest decline of 10%.

Several analysts attribute L2 tokens’ poor performance to the large supply of tokens and the continuous selling pressure exerted by organizations affiliated with the L2s.

“There have been Arbitrum and Optimism unlocks, and those are the two that have seen the most price weakness,” Thomas Bautista, a research analyst at GSR, told Blockworks in an interview.

“OP and ARB both saw substantial token unlocks this year. The significant increase in circulating supply created sell pressure, driving down individual token prices.”

Indeed, a significant portion of L2 tokens are still locked and will be gradually released over the coming years. According to data from Token Track, only 40% of Arbitrum tokens are currently in circulation.

Meanwhile, only 29% of OP tokens are currently in circulation, and Starknet will face an even larger supply shock, with a mere 19% of its tokens circulating. Mantle is an outlier among major L2s, with 54% of its tokens currently in circulation.

“In dollar terms, this means we are going to see several billions worth of tokens come into circulation over the next few years,” Bautista added.

Furthermore, cooperatives and foundations that govern most L2s often utilize these tokens to fuel the growth and development of their respective ecosystems. For instance, the Arbitrum DAO recently voted to establish a “Gaming Catalyst Program” that will provide grants and invest in game developers and studios.

The program was funded with more than 200 million ARB tokens, which were valued at approximately $200 million at the time of the announcement.

“Right now, all the L2s are really focused on growth, and a lot of that growth is through token incentives,” Ian Unsworth, the founder of Kairos Research, told Blockworks.

“There’s nothing wrong with that, it’s obviously with the intent of getting to a point where there is so much value being created on the chain itself that it can begin flowing back to the DAO or token holders themselves.”

It is worth noting that the combined market value of major rollup tokens has remained relatively stable despite the large token unlocks and sell pressure, according to Bautista.

“The total market cap of the top five L2 tokens has held steady at around $6 billion since December 2023, suggesting that the market’s overall valuation of top L2s has held steady despite the price declines,” he said.

Moreover, if crypto markets experience a broad-based rally, it could potentially lift L2 tokens despite the planned supply increases, according to Brian Rudick, director of research at crypto trading firm GSR.

“Unlocks are typically a headwind for token prices, but the largest determinant on how much [or] whether they impact price will likely be the market backdrop,” Rudick told Blockworks.

“As we’ve seen in previous cycles, large unlocks are often much more easily absorbed when crypto prices are running.”