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digital
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digital daily: Long Underwear

Long Underwear: How do you stay warm in harsh winter conditions? Layer up. The same strategy applies in the digital ecosystem. Insulation from the chill in market activity comes from the warmth of Ethereum's layer 2 scaling solutions. L2Beat is the best resource for tracking activity across layer 2s, where faster block times and cheaper transactions are producing organic growth. Optimistic smart contract platforms like Arbitrum and Optimism, as well as application-specific venues such as ImmutableX and dYdX, attract the marginal user. Additional competition from zero-knowledge layer 2s is scheduled to enter the market in 2023. Milestones are being set. Combined transaction volume for Ethereum layer 2s has recently eclipsed the base layer – in a bear market! Polygon exceeds both layer 1 and layer 2s combined, with nearly three times Ethereum's throughput. But lower transaction costs on scaling platforms also encourage smaller transactions, meaning that the activity statistics poorly approximate economic value. Total value locked (TVL) is a reasonable starting point. Ethereum houses nearly $25B, whereas the largest layer 2s and Polygon combined are about one-tenth the size at under $3B. It is a story of rising activity, raising the temperature, and enticing users to experiment with new platforms and product-market fit. Soon, there will be too many layers. Ill-fitting or poor-performing ones will be shed as users consolidate around a few new favorites. It is a healthy process that creates conviction and sends demand signals to development teams who expand the set of available applications. So, don your favorite layers and head out into winter's cold. There is an opportunity to stay active regardless of the temperature. There’s no such thing as bad weather, only bad clothing.

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