Ethereum’s Layer 2 networks have become an enticing option for many companies looking to leverage blockchain technology without the hefty challenges of launching a new Layer 1 blockchain. However, as EY’s Global Blockchain Leader Paul Brody explains, not every firm benefits from creating its own Layer 2 scaling solution.
With over 150 Layer 2 projects already live, the market is crowded. Many of these networks are centralized, often tied to a single enterprise, like Robinhood, who recently announced plans to launch its own Ethereum Layer 2 network. Layer 2s offer significant advantages over building independent blockchains by directly leveraging Ethereum’s robust security, smart contract capabilities, and large developer community.
Why Layer 2 Networks Matter
Ethereum, now a decade old, remains the largest platform for smart contracts, decentralized finance (DeFi), stablecoins, and real-world assets integration. Layer 2 solutions are gaining traction as they allow organizations to operate custom ecosystems with control over access, pricing, and data visibility, all while benefiting from Ethereum’s foundational security.
However, operating a Layer 2 isn’t free. Networks must pay settlement fees on Ethereum’s mainnet (called blob space), although these are substantially lower than the costs of launching and sustaining an independent Layer 1 blockchain. For instance, Coinbase’s Base Layer 2 network generated $4.9 million in fees in June 2025, while incurring only $50,000 in Layer 1 settlement costs.
When Does It Make Sense to Launch a Layer 2 Network?
According to Brody, the key value of blockchain technology lies in ecosystems where participants operate on a level playing field without centralized control. For most businesses—like manufacturers or retailers—direct connections to existing Ethereum networks or public Layer 2s are more practical and cost-effective than running a private or semi-private Layer 2.
The companies that stand to gain most from launching their own Layer 2 are those that can aggregate significant transaction volumes internally and whose customers lack the scale or means to connect directly to Ethereum. This primarily includes financial services firms with millions of retail users—such as Coinbase, Kraken, and Robinhood. For these firms, owning a Layer 2 network may become a competitive necessity akin to having a seat on a traditional stock exchange.
Key Questions for Potential Layer 2 Builders
Brody suggests any company considering a Layer 2 should ask:
- Can we aggregate a large transaction volume compared to other networks?
- Is on-chain transaction processing central to our business model (especially if acting as an intermediary)?
- Does our Layer 2 offer a unique value proposition that differentiates us from existing networks?
If the answer to all three is yes, launching a Layer 2 could be viable. Otherwise, firms might find better value in connecting directly to Ethereum or established Layer 2s, avoiding the cost and complexity of running their own network.
The Risks of Layer 2 Proliferation
Yet despite these challenges, history shows many firms launch private or semi-private chains for the perceived benefits of “controlling their destiny” or capturing ecosystem fees—even when the economic case is weak. Centralized Layer 2s may seem like a compromise, but only a few are likely to succeed long-term amid fierce competition and the benefits of open, permissionless networks.
Disclaimer: These are the personal views of the author and do not represent the views of EY.
Source: CoinDesk. Read the original coverage for full details.