What type of summer will crypto investors get in 2022?
2020 was DeFi summer — when decentralized finance (DeFi) tokens soared as investors focused on the potential for DeFi to disrupt traditional finance.
2021 was Solana summer — when popular blockchain Solana ($SOL) rose as a potential challenger to Ethereum’s dominance.
What kind of summer will 2022 bring? Could it be a layer 2 summer?
ELI5: What are layer 1, 2 and 3s?
Think of the blockchain as the operating system for crypto payments with its architecture broken down into different layers — each serving its own purpose:
- Layer 1s are the main blockchain networks like Ethereum and Solana, which process and finalize transactions.
- Layer 3s are often seen as the application layer — the apps that end consumers see (i.e., Axie Infinity, Uniswap).
In between are layer 2s — which improve layer 1s by making them more scaleable.
The problem: High transaction fees and network congestion have been significant issues for Ethereum — the largest blockchain.
The solution: Layer 2s speed up and lower the cost of transactions on layer 1 blockchains — by combining transactions before sending them to the blockchain.
Fight for Ethereum layer 2 dominance
Layer 2s are an essential part of the blockchain infrastructure. Vitalik Buterin — Co-Founder of Ethereum — sees them as the future for Ethereum’s growth.
Arbitrum and Optimism are two of the largest layer 2 networks, but these projects were missing tokens for years. Now investors are getting their wishes fulfilled.
- On April 26, Optimism announced plans to airdrop its governance token $OP to early product users.
- Optimism has reduced transaction costs on Ethereum by 90x — for over 108 decentralized apps.
Networks are using airdrops as marketing incentives — “use our platform and receive free tokens.” Optimism will airdrop 5% of the token’s supply to users, and will distribute another 14% in the coming months.
With the launch of Optimism’s token, the pressure is on Arbitrum to release their own tokens — potentially kicking off a layer 2 war.
Investors: How can investors get in on the action?
After the airdrop, Optimism’s token will likely trade on major crypto exchanges — but it’s unknown when they could be listed. And just because they’re launching doesn’t make them an good investment out of the gate.
- Existing layer 2 tokens, including Polygon ($MATIC), Boba Network ($BOBA) and Metis ($METIS) — have underperformed the market in 2022.
April has been a challenging market — with major cryptos struggling to gain momentum in recent weeks… except ApeCoin ($APE) — which is up over 70% in the past 30 days — with hype building around its metaverse.