Ethereum L1 at Risk of Falling Behind in Tokenization Boom

Ethereum is at the center of a heated debate over its role in the rapidly growing tokenization boom. While many expect leading Layer 1 (L1) networks like Ethereum to benefit from this trend, analysts are divided on whether the Ethereum mainnet itself will capture significant value or if its Layer 2s (L2s) will take the lead.

Gabriel Shapiro, an analyst, argues that Ethereum will benefit regardless of where tokenization occurs, whether on the mainnet or through custom L2s like Robinhood Chain. However, others point to the near-zero market share of Ethereum L1 in tokenized stocks on decentralized exchanges (DEXs), with overall tokenized securities DEX volumes surging to 12%. Lorenzo Valente, Ark Invest’s head of crypto research, questions where this leaves Ethereum L1, emphasizing the need for a clear vision on what belongs on L1 versus L2s.

Luigi DeMeo, Chief Strategy Officer at Aave, warns that Ethereum risks falling behind newer ecosystems if it does not take an active role in attracting issuers and regulated venues. Marius Smith, co-founder of Ethereum Institutional, disagrees with the notion that Ethereum is lagging, arguing that supply, not volume, is the key metric. He also highlights that BNB Chain’s high DEX volume is subsidized, shifting focus to winning issuers rather than chasing turnover.

The tokenized securities market is currently valued at $3.2 billion and is projected to reach $2 trillion by 2028. As tech giants, brokers, and banks prepare to launch their own blockchains for tokenized products, the future market share of the Ethereum ecosystem remains uncertain.