Ava Labs CEO warns against substandard L2 projects and says the next cycle will be worse.

Emin Gün Sirer, founder and CEO of Ava Labs, has sounded the alarm about the rise of substandard Layer 2 (L2) solutions in the cryptocurrency industry.

Similar to the aftermath of the FTX collapse, he warned investors about the risks associated with investing in these “junk” projects.

Ava Labs founder highlights L2 red flags.

On March 23, Sirer met with He warned that the coming cycle would see increased noise and worsening behavior. Sirer added that it is easy to release low-quality L2 solutions and tempt individuals to engage in such practices.

hello everyone,

We all ignored the huge red flags associated with SBF because “he looked smart” and “he made a lot of money.” Then it turned out that he was an idiot, a sociopath, and was stealing our money.

The next cycle will be much louder.

— Emin Gün Sirer🔺 (@el33th4xor) March 23, 2024

The Ava Labs CEO described specific issues regarding the gap between marketing promises and the technical reality of some L2 projects.

The main red flag he points out is that these projects have centralized sequencers that lack anti-fraud mechanisms. He also warned against L2 solutions that sell tokens solely for fundraising purposes without any clear utility within the network, which is often a sign of a lack of real value or innovation.

Sirer also warned that the project’s founders’ initial token sale could indicate a lack of confidence in its long-term viability. Additionally, with a limited number of tokens in circulation, they are vulnerable to price manipulation, such as artificially inflating the value of a project and misleading investors about its potential.

To differentiate between real L2 projects and those that are not, Sirer recommends that investors look for solutions that address key issues in the cryptocurrency space, such as performance, scalability, and seamless integration with existing financial systems. Sirer also spoke about the importance of L2 platforms supporting a variety of use cases with benefits beyond technology enhancements.

He emphasized the importance of examining the moral character and behavior of project founders because ethical misconduct indicates a lack of project integrity.

Different perspectives on L2 solutions

In response to Sirer’s insights, MultiversX core developer Robert Sasu emphasized the importance of fundamental blockchain characteristics such as decentralization, security, and thoughtful design.

Decentralization, security, and correct configuration by design are important. Many L2s miss most of these points. I can agree with your world, but don’t forget other ecosystems like MultiversX that are at least as expansive, if not more so.

Let’s not forget this when it comes to blockchain…

— Robert Sasu (@SasuRobert) March 24, 2024

On the other hand @nextalphaa brought it This is a different perspective from the discussion of Ethereum’s L2 solution. Users emphasized Ethereum’s permissionless nature and inclusiveness, arguing that Ethereum promotes a variety of projects that contribute to the ecosystem’s goals of greater transparency and decentralization.

Meanwhile, Ethereum’s L2 ecosystem has experienced significant growth, with total locked value exceeding $38 billion. At the milestone in October 2023, trading activity on the L2 network surpassed that on the Ethereum mainnet. According to L2beat, these L2 networks currently process approximately five times as many transactions as the mainnet.