Ethereum L2s Face 2026 Extinction Event as Base, Arbitrum, and Optimism Cement Dominance: 21Shares Report
The Ethereum scaling landscape is headed for a brutal consolidation. A new analysis from 21Shares paints a stark picture: by 2026, the majority of today's Layer 2 networks could vanish, crushed under the weight of a tightening oligopoly.
The Big Three's Stranglehold
Forget a vibrant ecosystem of dozens of contenders. The data suggests a future dominated by a handful of giants. Networks like Base, Arbitrum, and Optimism aren't just leading—they're actively consolidating developer activity, total value locked, and user mindshare. Their massive ecosystems and deep-pocketed backers create a gravitational pull that smaller chains simply can't escape.
Why the Little Guys Can't Compete
It's a classic story of network effects, but on blockchain steroids. Building a secure, decentralized, and performant L2 is astronomically expensive. Maintaining it is a continuous burn of capital and developer hours. New entrants face a brutal choice: spend like a venture-backed giant to attract users, or watch liquidity and developers bleed to the established players. Most are choosing neither—they're just quietly fading away.
The Coming Shakeout
The next 18 months will separate the protocols from the pipe dreams. Expect a wave of 'strategic pivots' (the polite term for failures) and opportunistic mergers as projects run out of runway. The survivors will be those who secured unshakable niches or possess war chests large enough to outlast the drought—a scenario that should feel familiar to anyone who lived through the dot-com bust, just with more jargon and slightly worse memes.
In the end, scalability might be achieved, but at the cost of the very decentralization Ethereum promises. The L2 future is arriving, and it looks suspiciously like the old finance world: dominated by a few powerful, well-connected players.
Base, Arbitrum, Optimism Dominate as Dozens of Ethereum L2s Become ‘Zombie Chains’
More than 50 L2s currently compete for users, liquidity, and developers. However, by late 2025, market share had already consolidated around three networks, including Base, Arbitrum, and Optimism, which together processed nearly 90% of all L2 transactions, with Base alone surpassing 60%.
The rest of the field is slipping into irrelevance. Activity across smaller rollups has fallen sharply, with L2 usage down 61% since June, the report shows.
Many are now operating as so-called “zombie chains,” running with minimal user activity and evaporating liquidity.
Several projects have already failed. Kinto shut down entirely, Loopring closed its wallet service, and Blast’s total value locked collapsed 97%.
Even major DeFi protocols such as AAVE and Synthetix scaled back their deployments on weaker L2s, citing poor liquidity and limited returns.
Layer 2s
Layer 2s are basically like a supporting chains, and they are most times created to solve the problem of the parent blockchain and reduce network congestion on the parent chain
Example of LAYER 2s:
– Base ETH
– Arbitruim
– Polygon
– Optimism
– Starknet
Learn & learn
The Dencun upgrade’s 90% fee reduction triggered aggressive fee wars that pushed most rollups into losses. Base was the only L2 that turned a profit in 2025, earning around $55 million.
21Shares expects a “leaner, more resilient” set of networks to define Ethereum’s scaling layer by the end of 2026.
ETH-aligned designs like Linea, which redirect fees back to Ethereum through burns or validator rewards, aim to improve long-term sustainability.
Meanwhile, high-performance entrants such as MegaETH are targeting near-real-time execution to close the gap with fast monolithic chains.
Exchange-backed networks are also reshaping the landscape. Coinbase’s Base and Binance’s BNB Chain showed how centralized platforms can onboard millions directly onchain, while Bybit’s Mantle and Kraken’s Ink are expected to follow.
$1T Stablecoins, $400B ETPs, and the Rise of AI-Driven Finance
Beyond Ethereum’s scaling shakeout, 21Shares points to a series of structural shifts that are likely to reshape the digital asset landscape in 2026.
Stablecoins are on track to reach $1 trillion in circulation as they continue to gain ground in payments, remittances, and corporate finance.
At the same time, global crypto ETPs are expected to surpass $400 billion in assets, putting them in the same league as major equity index funds as institutional access broadens, per the report.
Decentralized finance is also set for a resurgence. The firm projects that DeFi’s total value locked will climb past $300 billion, helped by falling interest rates, growing stablecoin liquidity, and companies deploying idle treasury assets into onchain markets.
Prediction markets, one of the fastest-growing sectors of 2025, may cross $100 billion in annual trading volume as political uncertainty and macro volatility fuel demand for real-time event speculation, 21Shares said.
