Ethereum's Tokenization Conundrum: Will L1 Miss the Party?

The ongoing tokenization boom is expected to benefit leading L1 networks, including Ethereum. However, some analysts are warning that the Ethereum mainnet (L1) may be missing the party to its Layer 2s (L2s).

According to Lorenzo Valente, Ark Invest's head of crypto research, Ethereum L1 has nearly zero market share in tokenized stocks in spot DEXes. Tokenized securities DEX volumes have surged to 12%, but Ethereum's mainnet has little traction.

Valente added that tokenization will reshape the on-chain economy, with tokenized equities being the fastest-growing segment over the next two years. He called for a clear vision from Ethereum on what belongs on L1, what moves to L2s, and how the two fit together.

Some analysts agree with Valente's call, including Luigi DeMeo, Chief Strategy Officer at Aave. DeMeo warned that Ethereum risks being left behind if it doesn't take an active role in the tokenization boom.

Marius Smith, co-founder of Ethereum Institutional, disagreed, arguing that supply, not volume, is the key metric. He pointed out that BNB Chain's outsize share in DEX volume is subsidized, and that Ethereum needs to focus on winning issuers and regulated venues.

The tokenized securities market is currently at $3.2B and expected to hit $2T by 2028. Tech giants such as Google, traditional brokers, and banks plan to debut their blockchains to issue these products, leaving it to be seen how much market share the Ethereum ecosystem will hold.