Ethereum is in the midst of a paradox. Even as ether hit record highs in late August, decentralized finance (DeFi) activity on Ethereum’s layer-1 (L1) looks muted compared to its peak in late 2021. Fees collected on mainnet in August were just $44 million, a 44% drop from the prior month.

Meanwhile, layer-2 (L2) networks like Arbitrum and Base are booming, with $20 billion and $15 billion in total value locked (TVL) respectively.

This divergence raises a crucial question: are L2s cannibalizing Ethereum’s DeFi activity, or is the ecosystem evolving into a multi-layered financial architecture?

AJ Warner, the chief strategy officer of Offchain Labs, the developer firm behind layer-2 Arbitrum, argues that the metrics are more nuanced than just layer-2 DeFi chipping at the layer 1.

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