Emin Gün Sirer, the co-founder of Avalanche blockchain, has raised concerns about deceptive trends within certain layer-2 (L2) solutions in the crypto industry. In a recent post on X, Sirer highlighted the risks these “trash” projects pose to investors and aimed to educate users about their common characteristics and red flags.

Sirer considers the emergence of substandard L2 projects as a significant hazard in the crypto ecosystem, which follows the notorious crypto exchange heist orchestrated by Sam Bankman-Fried, the former founder and CEO of FTX.

By drawing attention to these deceptive trends, Sirer hopes to create awareness among users and investors, enabling them to identify and avoid potential scams or low-quality L2 projects. It reflects the importance of due diligence and caution when engaging with new crypto ventures.

As the crypto industry continues to evolve, it is crucial for users to stay informed and exercise vigilance to protect themselves from fraudulent or subpar projects.

Influx of “Trash” L2 Projects Floods the Market, Raising Concerns

Emin Gün Sirer argues that the launch procedures for L2 solutions in the crypto industry are relatively lenient, allowing bad actors to create projects that lack value or legitimacy. To protect investor security, Sirer outlined several warning signs associated with these risky L2 solutions.

One warning sign is a discrepancy between the project’s narrative and its underlying technology. Sirer points out that if a project’s marketing claims do not align with its technical implementation, it raises concerns about transparency and integrity. For example, if a project claims to be decentralized but relies on centralized sequencers or lacks fraud-proof mechanisms, it contradicts the core principles of decentralization and security in the crypto space.

Sirer also highlights L2 solutions that conduct token sales primarily for fundraising purposes, rather than having a clear, practical use on the network. This raises suspicions about the true intentions and viability of the project, suggesting that it may be a dubious investment opportunity.

Additionally, Sirer cautions against L2 projects in which founders sell their personal native tokens before the project’s launch. This practice is seen as a significant red flag, indicating that the founders may prioritize personal financial gains over the long-term success and development of the project.

By pointing out these warning signs, Sirer aims to help investors identify potential risks and avoid investing in low-quality or fraudulent L2 projects. It underscores the importance of conducting thorough research and due diligence before engaging with any crypto project.

 

The Concern of Low-Float Tokens within L2 Networks

Sirer also expresses concern about the prevalence of low-float tokens within projects, which can artificially inflate token values through manipulative tactics, similar to what was allegedly done by Sam Bankman-Fried. This highlights the need for investors to be cautious and aware of potential market manipulation when evaluating L2 projects.

Additionally, Sirer advises investors to pay attention to the moral conduct and habits of project founders. Any signs of personal misconduct should be considered during the evaluation process, as the integrity and character of the project’s leadership can significantly impact its long-term success and trustworthiness.

To help investors navigate the numerous L2 projects being launched daily and identify authentic and profitable ventures, Sirer proposes a simple test. He suggests identifying the main challenges or “blockers” in the crypto space at any given time. Currently, he believes that supporting multiple use cases on the same platform and integrating with traditional finance (TradFi) are critical challenges. Therefore, investors should assess whether an L2 project genuinely addresses these challenges before considering an investment.

The expansion of Ethereum’s Layer 2 ecosystem has been significant, with a total value locked (TVL) surpassing $27 billion. Transaction activity on Layer 2 networks has also exceeded that of the Ethereum mainnet, with these networks processing five times as many transactions, according to L2beat.

Arbitrum, an Ethereum-based Layer 2 network, has emerged as a dominant player in the space, with a market share of 49.17% among Layer 2 networks, according to reports. Its TVL has shown consistent growth, reaching $2.51 billion, according to data from DefiLlama.

These developments highlight the increasing adoption and usage of Layer 2 solutions, but also emphasize the importance of careful evaluation and due diligence when considering investments in L2 projects.

By admin

Leave a Reply

Your email address will not be published. Required fields are marked *