Exchanges Enter Layer2, Could Reshape Market Competition Landscape?
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Exchanges Enter Layer2, Could Reshape Market Competition Landscape?
The battle for Layer2 is heating up.
Navigating Web3 tides with focused insightsThe Layer2 race is heating up.
With the arrival of Ethereum's Shanghai upgrade and the sudden rise of liquid staking derivatives (LSD), Ethereum Layer2 has become a dominant narrative in the 2023 crypto market.
Earlier Layer2 scaling solutions such as sidechains, state channels, and Plasma failed to meet market demand. Rollup technology emerged as the most popular scaling solution today, splitting into two major camps: OP Rollup and ZK Rollup. OP Rollup has already formed a duopoly between Arbitrum and Optimism. In the long term, ZK Rollup holds clear technical advantages, with zkSync, a leading ZK-based project, recently announcing its mainnet launch and poised for growth.
Meanwhile, major cryptocurrency exchanges such as Coinbase and Huobi have begun entering the Layer2 space. The Layer2 market has entered an era of fierce competition, and the involvement of exchanges could reshape the entire Layer2 landscape.
Exchanges Go All-In on Layer2
Layer2 has attracted significant user attention due to its low cost and convenience. For centralized exchanges, entering the Layer2 space has become one of their key strategies to capture traffic. In the past, exchanges primarily engaged with Layer2 through indirect methods such as integration and investment.
Take Binance as an example. Binance has integrated two major Ethereum Layer2 solutions—Arbitrum One and Optimism—and supports ETH deposits and related services. Additionally, Binance made a $6 million strategic investment in Zecrey, a Layer2 cross-chain protocol, to expand its development team and support marketing, branding, and partnerships.
Today, centralized exchanges are taking more direct and aggressive approaches to Layer2. Coinbase, the first publicly traded cryptocurrency exchange, became the first centralized exchange to announce its own Layer2 initiative.
On February 22, Coinbase announced the launch of the Base testnet, an Ethereum Layer2 network designed to provide a secure, low-cost, and developer-friendly platform for building decentralized applications. Its goal is to onboard the next billion users into the crypto economy.
Regarding Base’s launch, Coinbase revealed it had considered launching a Binance Smart Chain-style L1 twice but ultimately decided against it, fearing such a chain would isolate itself from the thriving crypto economy.
For this reason, Huobi chose a different path from Binance and Coinbase. It opted to leverage cross-chain interoperability protocols to reach a broader crypto user base.
Following Coinbase’s Lead, Huobi Joins the BTTC L2 Ecosystem
For Layer2 ecosystems, attracting not only new users but also capturing existing users, developers, and projects from Layer1 chains is crucial to achieving large-scale migration, creating strong network effects, and monopolizing internal ecosystems.
To this end, Huobi partnered with the cross-chain solution BitTorrent Chain (hereinafter referred to as BTTC), with goals similar to those of Base.
On February 28, cryptocurrency exchange Huobi announced its entry into the BTTC ecosystem and pledged support for the development of BTTC’s Layer2 network to advance the creation and improvement of an open financial system on-chain.
As the first heterogeneous cross-chain interoperability scaling protocol in the crypto market, BTTC connects major public blockchains such as Ethereum, TRON, and BNB Chain, enabling seamless asset transfers and forming a super-network linking all blockchain networks. This undoubtedly creates a massive traffic pool for the upcoming BTTC Layer2 network.
Moreover, Huobi’s participation will further accelerate the development of BTTC’s decentralized ecosystem and enhance the vibrancy of its own ecosystem. With over 50 million users worldwide and cumulative trading assets exceeding $100 trillion, Huobi, as one of the largest traffic hubs in the crypto space, will enable developers to serve vast numbers of verified users and connect enormous digital assets. According to a report released by Huobi Research at the end of 2022, there are already 320 million crypto users globally. Through BTTC Layer2, Huobi may soon offer virtual asset trading services to hundreds of millions—or even over a billion—users worldwide.
At the same time, by supporting Layer2 network development across major public blockchains including Ethereum and TRON, Huobi can provide blockchain developers with an open, secure, and diverse environment. Users on the Huobi exchange will also gain early access to top-tier projects and assets. In time, Huobi may gradually evolve into Asia’s answer to Coinbase.
A new Layer2 narrative has emerged. As major exchanges from North America and Asia enter the Layer2 arena, others without public chains may soon follow suit and launch their own Layer2 networks, potentially giving rise to a new competitive landscape.
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