Author: Dan Hughes, Founder of Radix, CoinTelegraph; Translated by: Deng Tong, Jinse Finance

For years, cryptocurrencies have viewed Layer 2 (L2) solutions as a panacea for scalability issues. What if they are precisely what is putting us in danger?

This obsession has not paved the way for mass adoption, but instead created a complex network of rollups, bridges, and fragmented liquidity, threatening the core principles of blockchain decentralization and security. The dream of a seamless, decentralized network is gradually fading, obscured by a complex system that echoes the inefficiencies and centralization of the traditional financial world. Are we expanding innovation, or merely reproducing the past?

Blockchain Trilemma

L2 was supposed to alleviate the blockchain trilemma. However, while they may fill gaps at an individual level, L2 solutions risk causing cryptocurrencies to lose all three aspects.

The continuous growth of L2 has led to a highly fragmented ecosystem that is difficult to navigate and relies on complex rollup and bridging solutions. This results in centralization of certain ecosystem parts, attracting assets into isolated decentralized liquidity pools, hindering security and stifling competition for smaller projects.

These "solutions" introduce massive friction and unnecessary security risks. While bridge-related hacks have become less common in the past two years, hackers will always find new ways to balance the books—exploiting rollups, channels, and sidechains.

Many L2's dependence on sequencers or trusted validators creates additional cracks in the armor—single points of failure—while isolated liquidity reduces the availability of validators for smaller L2s, thereby threatening network resilience.

These solutions also pose significant technical challenges for application developers wanting to integrate with L2, requiring deep and specific understanding of the mechanisms of each L2 an application might need to interact with.

L2 proponents argue that these trade-offs are necessary and easily overcome, but there are more fundamental issues than sacrificing security, scalability, or liquidity.

The ultimate goal of cryptocurrency is to build a universal network where any asset or decentralized application can instantly interact with any other asset or decentralized application in a trustless, secure manner. However, the friction introduced by L2 disrupts this instant interoperability, while the centralization of sequencers and validators undermines the foundation of a trustless system. This not only hinders the scalability of DeFi but leads to a completely different expansion, reproducing the inefficiencies of existing isolated, fragmented, and intermediary-laden TradFi systems.

If the goal of DeFi is to move all financial activities on-chain, we must do better than we are now.

Building Foundations

Crypto needs to build from the ground up. Blockchain networks must prioritize scalability and security at Layer 1.

Sharding provides a clear path forward, but the industry must set higher goals and build long-term solutions, not just quick fixes to current scalability issues. This is not just about increasing the number of shards, but how we shard. Beacon chains merely add a bottleneck, dynamic sharding is complex, limits scalability, and creates massive overhead. Even validator-internal sharding seems to solve all these problems until you reach resource saturation on network-facing nodes that must receive all transactions, merely pushing the problem forward by seeking more validators and reducing rewards.

The obvious solution to scaling DeFi to TradFi functionality is state sharding, where the blockchain's state is distributed across many different shards. Transactions involving state from different shards create a temporary consensus process.

Validators responsible for transaction state communicate atomically, agree (or disagree), and update state across all relevant shards. This allows parallel processing of transactions across multiple shards and even within shards, with shards only needing to focus on transactions modifying their responsible state having no cross-dependencies, significantly improving throughput without compromising decentralization or accessibility.

When these shards are integrated with atomic commitments, if any part of a transaction fails, everything cleanly aborts without any work to unwind pending state changes.

This is just one solution. DeFi will expand to the planet. It's just a matter of when and how. That said, focusing on L1 development foundations instead of relying on L2 patchwork solutions will eliminate fragmentation, reduce complexity, and ensure scalability and accessibility become the core of blockchain networks again. Ultimately, the future developers want to prioritize—token economics or Web3's founding promise of decentralization, efficiency, and security.

Scaling for the Future

L1 solutions are solutions for everyone. They ensure the ecosystem's foundation for developers, traders, ordinary users, and even billions of potential users. Without resilience and scalable architecture in the foundation, just one strong push is enough to make this house of cards collapse. Of course, specific use cases might be more suitable for L2 solutions. High-frequency transaction settlement is a perfect example, but exceptions can never prove the rule. From the entire ecosystem's perspective, developers must focus on integrated, native scalability solutions, rather than simply adding complexity and balancing more unstable "solutions" on top. If L1 is not adequately addressed, it will only bring problems.