General-purpose chains lose users as smaller networks face existential pressure
Ethereum’s layer-2 ecosystem is undergoing a sharp contraction. Base and Arbitrum now account for more than 80% of layer-2 decentralized finance total value locked, according to DefiLlama data, while smaller general-purpose chains hemorrhage users and bridge deposits.
Zero Network, an Ethereum layer-2, announced its shutdown last month. Linea, another layer-2, saw bridge deposits collapse from $976 million in November 2025 to $367 million in May 2026, a 60% decline over six months. Smaller chains including World Chain, Starknet and Mantle have all experienced declining bridge deposits over the same period.
The consolidation reflects a fundamental market realization: most general-purpose layer-2s have no defensible reason to exist.
“There were way too many general-purpose layer twos, which frankly don’t make sense as a product, because there’s no reason to have many, many versions of the same thing,” said Ben Fisch, co-founder and CEO of Espresso Systems. “People have realized that all the different general-purpose blockchains compete with each other. If you want to succeed, you need to build out a differentiated application.”
Rollups process transactions off Ethereum’s main blockchain, bundle hundreds together, and periodically post compressed transaction data back to Ethereum for settlement and security. Infrastructure stacks such as Optimism’s OP Stack, Arbitrum Orbit and zkSync enabled easier chain launches, triggering an explosion of layer-2s over the past several years. But ease of deployment did not guarantee product-market fit.
Alice Hou, former research analyst at Messari, argues the economics no longer support generic chains. “Without enough blockspace demand, user activity or developer traction, there is little reason to continue maintaining an L2,” Hou said. “Only L2s with a solid existing user base and a clear reason to benefit from blockchain infrastructure should launch their own networks.”
The threshold for viability has risen sharply. “From an operator perspective, it is definitely cheaper to run an L2 today. The economics of launching an L2 have become easier, but the real challenge is still generating enough sustained demand to make the network worth operating,” Hou said.
Fisch frames the shift as a return to first principles. “The thing to recognize is that anywhere where somebody would be running a smart contract on an existing blockchain, someone could equally run a layer two. We’re in a consolidation phase for general-purpose layer twos, not layer twos broadly,” he said.
Successful layer-2s are now those with application-specific use cases. “I think only a few L2s with clear financial demand will be able to sustain themselves over time,” Hou said. “The question should not be, ‘Can this company launch an L2?’ It should be: ‘Does this business already have enough distribution, financial activity and ecosystem synergies to make an L2 meaningfully useful?'”
Ethereum’s Dencun upgrade, introduced in 2024, reduced rollup costs further but also intensified competition among chains fighting for the same user base. The result is a bifurcated market: dominant incumbents extracting network effects, and smaller chains struggling to justify continued operation.
Fisch notes that the technology decision to run as a layer-2 is fundamentally a deployment choice, not a strategic moat. “Ethereum is sort of a commodity that layer twos can choose to use,” he said. “I don’t view layer twos as scaling Ethereum. I view layer twos as leveraging the existing security properties of layer one.”
