Emin Gün Schiller, co-founder of Avalanche blockchain, warned against deceptive trends that penetrate certain Layer 2 (L2) solutions and pose risks to investors.
in Recent posts about XSiler expressed concern about these “garbage” projects and educated users on common characteristics and red flags.
Shiller said the rise of substandard L2 projects, following the infamous crypto exchange heist orchestrated by former FTX founder and CEO Sam Bankman Fried (SBF), has led to the rise of substandard L2 projects. We believe it represents the next major danger in the ecosystem.
“Garbage” L2 projects flood the market
This well-known cryptocurrency industry figure claims that the relatively lax procedure for launching L2 solutions allows bad actors to create projects of little value.
To protect investor security, Siler outlined several warning signs associated with these risky L2 solutions.
First, he pointed to inconsistencies between the project's narrative and its underlying technology, indicating a misalignment between marketing claims and technical implementation.
For example, projects that use centralized sequencers and do not have anti-fraud mechanisms contradict the core principles of decentralization and security in the cryptocurrency space.
Siler also highlighted L2 solutions that primarily sell tokens for the purpose of raising funds rather than for any specific practical use on the network.
Such projects raise suspicions of questionable investments.
Additionally, Siler warned against L2 projects where founders sell their personal native tokens before the project launches, considering this to be a major red flag.
Hey everyone.
We all ignored the big red flags associated with SBF because “he seemed smart” and “he was making a lot of money.” Then it turned out he was stupid as hell, a sociopath, and was just stealing our money.
The next cycle will be even more noisy.
— Emin Gün Siler🔺 (@el33th4xor) March 23, 2024
Issuance of low float tokens within L2
Another concern raised by Sirer is the prevalence of low-float tokens within the project, which can artificially inflate the value of tokens through manipulative tactics similar to those employed by SBF.
Finally, Seiler advised investors to pay attention to the moral conduct and habits of project founders, as the evaluation process should take into account signs of personal wrongdoing.
In addition to the aforementioned red flags, Siler suggested a simple test to help investors navigate the vast number of L2 projects launched every day and identify genuine and profitable ventures. .
He suggested always identifying the main issues, or “inhibitors,” in the crypto space.
For example, before blockchain solutions like Avalanche and Solana emerged, scalability and performance were major concerns.
Siler believes that supporting multiple use cases on the same platform and integrating with traditional finance (TradFi) are key challenges currently facing the cryptocurrency ecosystem.
Schiller advises users to evaluate whether their project truly addresses these challenges before investing in an L2 solution.
Ethereum’s Layer 2 ecosystem has experienced significant expansion over the past year and a half, with total value locked (TVL) exceeding $27 billion.
According to L2beat, in October 2023, transaction activity on Layer 2 networks exceeded transaction activity on Ethereum mainnet, and these networks now process five times as many transactions on a daily basis.
As reported, Ethereum-based Layer 2 network Arbitrum is currently has a market share of 49.17% Among Layer 2 networks, it is far ahead of Optimism Mainnet, which ranks second on the list with a market share of 28.85%.
The network also Consistent increase in TVL Since at least October last year, it has increased about 50% from $1.66 billion in October to $2.51 billion today, according to data from DeFi tracking site DefiLlama.
