Coinbase: Tier 2 solutions could hurt Ethereum's earnings in the short term

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Coinbase, examining layer 2 scaling solutions for the Ethereum network, reported risks in the short term and benefits in the long term.

According to a report from Coinbase, Polygon (MATIC) andother scaling solutions pose a threat to the price of Ether (ETH). Analysts said that second-layer (L2) networks could reduce Ethereum's revenues.

"The development of L2 in the future may lead todecrease in Ethereum revenues, since most decentralized applications are deployed on them. Their growth could power the entire Ethereum ecosystem. This suggests that L2 could ultimately deprive Ethereum of all revenues,” experts expressed concern.

Coinbase reports that over the past yearscaling solutions such as Polygon (MATIC), Optimism (OP), and Arbitrum contributed less than 1% of Ethereum's revenue. Over the past 12 months, Ethereum earned $9.971 billion, compared to Arbitrum, Polygon and Optimism's combined revenue of about $78 million."

According to exchange analysts, once Ethereum switches to Proof-of-Stake (PoS), scaling solutions could lead to lower fees, which could negatively impact the price of ETH:

"If most of the useractivity will move to L2 and these networks will require their own tokens, this could reduce profitability for validators who will earn less from pure transaction fees. If this prevents orders from being placed on the platform, it will increase the liquid circulating supply of ETH, which could hurt its price.”

On the other hand, Coinbase experts believethat scaling solutions could benefit Ethereum in the long run. If L2 makes transactions cheaper, faster and easier, then the initial impact on revenue could be mitigated by increased activity on the network.

“The impact of L2 on Ethereum revenues could beshort-term phenomenon. Long-term earnings depend on more activity in the overall crypto ecosystem and whether Ethereum becomes the dominant universal blockchain,” the analysts said.

Let us recall that in anticipation of the Ethereum merger, the Coinbase exchange focused all its attention on staking.