Ethereum (ETH), one analyst insists, will continue outperforming layer-2 tokens like Arbitrum, Optimism, and others in the months to come.
The chatter of when Ethereum-based altcoins will flip Ethereum has been constant for years.
Even with the rise of DeFi, which propelled market leaders like Uniswap, Maker, Aave, and other top-tier projects, Ethereum remains unchallenged at second, only tracking the world’s most valuable platform, Bitcoin.
Q: What matters most for L2s accruing value back to ETH L1?
– Using ETH as a gas token?
– Using ETH DA rather than Alt DA?
– ETH being used as "money" on the L2 (e.g. for minting NFTs)?
– L2 calling itself ETH-aligned 😬?
– Something else? pic.twitter.com/10CIQwJkXW— Matt Huang (@matthuang) April 3, 2024
However, the dynamism of crypto now means analysts are comparing Ethereum with its scaling solutions like rollups, primarily Arbitrum, Base, Optimism, and even sidechains like Polygon.
Analyst Builds A Strong Case For Ethereum Layer-1
Taking to X, one analyst is making a strong case for ETH to stretch gains over layer-2 tokens like ARB and OP.
Would you rather own ETH or a basket of L2s?
A framework for relative analysis:
1. Price to Sales: ETH has a 365-day P/S ratio of 156. ARB,OP,STRK come in at 194 (fully diluted).
2. Token Unlocks/Change in circulating supply: ETH was deflationary last year (-.28%) and is on… pic.twitter.com/WCuWWYyt3t
— Michael Nadeau (@JustDeauIt) June 17, 2024
Though the advantages of building on Ethereum layer-2 solutions are evident, there are still many who think ETH, as a token, has more utility than layer-2 tokens and could, over the years, continue outperforming.
A key advantage of ETH over layer-2 tokens, the founder said, is the coin’s strong financial metrics. Of note, ETH, he adds, has a yearly price-to-sales (P/S) ratio of 156. Meanwhile, layer-2 tokens have a higher ratio of 194.
What this means is that investors find ETH to be a better asset based on current revenue.
Beyond this, the founder notes that ETH is deflationary. Last year, he noted that it had a -0.28% deflation rate and largely remains deflationary this year. On the other hand, layer-2 tokens are inflationary, with millions, if not billions, of tokens being unlocked or set for release.
The more tokens released, the higher the rate of dilution, capping gains. This year alone, ARB, OP, and leading layer-2 tokens have been tracking lower in the face of rising dilution.
ETH Has More Utility Than Scaling Layer-2 Tokens
The analyst further observed that ETH offers a wider range of functionalities than layer-2 tokens. For example, although it rewards validators with gas fees, it can also be staked for an annual near-risk-free yield.
The coin is also a base currency for various on-chain products like NFTs and decentralized money markets.
Because EIP-1559 permits ETH burning, the coin’s value could continue rising as the network gains more adoption. The token burning feature and the broader utility are lacking in layer-2 tokens; most of them are used chiefly for voting.
DISCOVER: How to Buy Ethereum in June 2024 – Beginner’s Guide
The Bottom Line: Spot Ethereum ETFs Are A Game Changer
The arrival of spot Ethereum ETFs would be a game-changer for ETH, allowing institutions to get exposure. As billions pour into the coin, its gap with layer-2 tokens and even top altcoins will only increase.
Even as Ethereum dominates, the role of layer-2 platforms is crucial.
Ethereum and layer-2 solutions will coexist and, most importantly, play a complementary role as the mainnet secures layer-2s, offering faster and cheaper transactions for specific use cases.
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Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
