Ava Labs CEO Warns of Substandard L2 Projects, Says Next Cycle Will Be Worse

Emin Gün Sirer, the founder and CEO of Ava Labs, has sounded an alarm on the rise of substandard layer 2 (L2) solutions in the crypto space.

Drawing parallels with the fallout from the FTX collapse, he cautioned investors about the dangers associated with investing in these “trash” projects.

Ava Labs Founder Highlights L2 Red Flags

On March 23, Sirer took to X to voice his concerns about the crypto community’s habit of ignoring warning signs, especially regarding people seen as successful at first glance. He warned that the upcoming cycle would likely see heightened noise and worsened behavior. Sirer added that it is easy to launch low-quality L2 solutions, tempting individuals to engage in such practices.

Hey y’all,

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 dumb as rocks, was a sociopath, and was just stealing our money.

The next cycle is going to be even more noisy, with even…

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

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

A major red flag he noted was the presence of centralized sequencers in these projects, which lack fraud-proof mechanisms. He also cautioned against L2 solutions with token sales only for fundraising purposes without a clear utility within their network, which often signals a lack of substantive value or innovation.

Sirer further warned that the project founders’ premature selling of native tokens could indicate a lack of confidence in the long-term viability. In addition, if a limited number of tokens are in circulation, they are vulnerable to price manipulation by artificially inflating the project’s value and misleading investors about its potential.

To differentiate between genuine L2 projects and those that are not, Sirer advises that investors seek solutions that address the core issues in the crypto space, such as performance, scalability, and seamless integration with traditional financial systems. Sirer further mentioned the importance of L2 platforms supporting different use cases with benefits beyond technical enhancements.

He stressed the importance of looking into project founders’ moral character and behavior since ethical misconduct indicates a project’s lack of integrity.

Diverse Perspectives on L2 Solutions

In response to Sirer’s insights, Robert Sasu, a core developer at MultiversX, has echoed the importance of foundational blockchain qualities such as decentralization, security, and thoughtful design.

Decentralisation, security and correct construction by design matters. A lot of L2s miss most of these points. I can agree with your worlds, but don’t forget other ecosystem who scale at least as much if not more: like MultiversX.

In case of blockchain let’s not forget that…

— Robert Sasu (@SasuRobert) March 24, 2024

On the other hand, @nextalphaa brought a different perspective to the discussion on Ethereum’s L2 solutions. The user highlighted Ethereum’s permissionless and inclusive nature, arguing that it promotes different projects that contribute to the ecosystem’s goals of more transparency and decentralization.

Meanwhile, Ethereum’s L2 ecosystem has experienced substantial growth, reaching a total locked value exceeding $38 billion. A milestone in October 2023 saw transaction activity on L2 networks surpass those on the Ethereum mainnet. Currently, these L2 networks process about five times as many transactions as the mainnet, according to L2beat.