Ava Labs Founder Highlights Danger Of Layer 2 Coins, Here's What He Says!

Avalabs, developer of avalanche crypto assets. (Photo; Doc. Decrypt)

JAKARTA - Emin G\"un Sirer, founder and CEO of Ava Labs, expressed concern about the emergence of layer 2 (L2) solutions that did not match standards. He drew comparisons with the fall of FTX, reminding investors of the dangers of investing in these projects dubbed "garbage".

On March 23, Sirer expressed concern through platform X about the crypto community's habit of ignoring warning signs, especially towards people who seemed successful at first sight.

Furthermore, he warned that future cycles are likely to be colored by increasing noise and deteriorating behavior. Sirer added that it is very easy to launch low-quality L2 solutions, which mediate individuals to engage in such practices.

The CEO of Ava Labs highlighted specific issues regarding the gap between marketing promises and the technical reality of several L2 projects. One of the conditions in his notes is the existence of a centralized sequencer in these projects, which has no evidence of fraud.

Sirer also reminded of L2 solutions whose token sales are only for the purpose of fundraising without clear utilities in their network, which often sign a lack of substantial value or innovation.

Sirer further warned that token sales by project founders before time could show a lack of confidence in long-term sustainability. In addition, if the number of tokens in circulation is limited, they are vulnerable to price manipulation by artificially inflating project value and misleading investors about their potential.

To differentiate between original and non-original L2 projects, Sirer suggested that investors seek solutions that address core problems in the crypto space, such as performance, scalability, and smooth integration with traditional financial systems. Sirer also mentioned the importance of an L2 platform that supports various use cases with benefits beyond technical improvements. He stressed the importance of developer's ethical behavior. Because unethical behavior suggests a lack of project integrity.

Meanwhile, the Ethereum L2 ecosystem has experienced substantial growth, reaching a total locked value exceeding $38 billion. An important achievement in October 2023 saw transaction activity on Ethereum's main network L2. Currently, this L2 network processes about five times more transactions than the main network, as reported by L2beat.