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.

היי כולכם,

כולנו התעלמנו מהדגלים האדומים הענקיים הקשורים ל-SBF כי "הוא נראה חכם" ו"הוא הרוויח הרבה כסף". ואז התברר שהוא מטומטם כמו אבנים, היה סוציופת ופשוט גונב את הכסף שלנו.

המחזור הבא הולך להיות אפילו יותר רועש, עם אפילו...

- Emin Gün Sirer🔺 (@el33th4xor) במרץ 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 פתרונות L2 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 ביצועים, 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.

ביזור, אבטחה ובנייה נכונה לפי ענייני עיצוב. הרבה L2s מפספסים את רוב הנקודות האלה. אני יכול להסכים עם העולמות שלך, אבל אל תשכח מערכות אקולוגיות אחרות שמתרחבות לפחות באותה מידה אם לא יותר: כמו MultiversX.

במקרה של בלוקצ'יין אל נשכח את זה...

- רוברט סאסו (@SasuRobert) במרץ 24, 2024

On the other hand, @nextalphaa מובא 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.