Ethereum's Zero Traction in Tokenized Stocks Sparks L1 vs L2 Debate
The ongoing tokenization boom is expected to benefit leading Layer 1 (L1) networks, including Ethereum. However, some analysts are warning that Ethereum's mainnet may miss the party, with its Layer 2s (L2s) taking the lead.
According to Lorenzo Valente, Ark Invest's head of crypto research, Ethereum L1 has nearly zero traction in tokenized stocks in spot decentralized exchanges (DEXes). Tokenized securities DEX volumes have surged to 12%, but Ethereum mainnet has almost no share in this market.
Valente posited that Ethereum needs a clear vision for what belongs on L1, what moves to L2s, and how the two fit together. This renewed the debate on the value capture and sharing between L1 and L2.
Some analysts, like Luigi DeMeo, Chief Strategy Officer at Aave, agree with Valente's call for Ethereum to take an active role in the tokenization boom. DeMeo noted that Ethereum has a first-mover advantage for cryptoassets, but new assets, such as stocks, can easily grow larger on newer ecosystems. If Ethereum doesn't take an active role, it risks being left behind.
However, Marius Smith, co-founder of Ethereum Institutional, disagreed with the argument that Ethereum was lagging. He noted that Ethereum leads in supply, not volume, and that the focus should be on winning issuers and regulated venues, not chasing subsidized Automated Market Maker (AMM) turnover.
The tokenized securities market is currently at $3.2B and expected to hit $2T by 2028. Tech giants, traditional brokers, and banks are also planning to debut their blockchains to issue these products, which may impact Ethereum's market share in the upcoming years.