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Warning from Emin Gün Sirer: Deceptive Trends Threaten Integrity of Crypto Markets

Emin Gün Sirer, co-founder of Avalanche blockchain, has raised concerns about concerning trends seeping into specific layer-2 (L2) solutions, potentially endangering investors.

In a recent article on X, Sirer shed light on these questionable projects, labeling them as “trash,” and provided insight into their typical traits and warning signs for users.

Sirer contends that the emergence of subpar L2 projects poses the next substantial threat to the crypto ecosystem, following the high-profile crypto exchange hack led by former FTX founder and CEO, Sam Bankman-Fried (SBF).

“Trash” L2 Projects Flood the Market

The prominent figure in the crypto space contends that the launch processes for L2 solutions are notably relaxed, enabling unscrupulous actors to create projects of little to no genuine value.

In an effort to enhance investor safety, Sirer delineated several indicators associated with these precarious L2 solutions.

First and foremost, he highlighted a dissonance between the project’s narrative and its underlying technology, suggesting a disconnect between promotional assertions and technical execution.

For instance, projects employing centralized sequencers devoid of fraud-proof mechanisms run counter to the fundamental tenets of decentralization and security within the cryptocurrency domain.

Sirer also emphasized L2 solutions that orchestrate token sales primarily for fundraising purposes rather than possessing a specific, tangible utility within the network.

Such endeavors raise suspicions of questionable investments.

Furthermore, Sirer warned against L2 projects wherein founders offload their personal native tokens prior to the project’s launch, deeming it a significant warning sign.

Issue of Low-Float Tokens within L2s

Another concern highlighted by Sirer is the prevalence of low-float tokens within projects, which can artificially inflate token values through manipulative tactics, echoing strategies employed by SBF.

Moreover, Sirer advised investors to scrutinize the moral conduct and behaviors of project founders, suggesting that any indications of personal misconduct should factor into the evaluation process.

In addition to the aforementioned warning signs, Sirer proposed a straightforward test to aid investors in navigating the multitude of L2 projects launched daily and identifying genuine and profitable ventures.

He recommended pinpointing the primary challenges, or “blockers,” within the crypto space at any given time.

For instance, scalability and performance were significant concerns until solutions emerged from blockchains such as Avalanche and Solana.

Sirer asserts that supporting multiple use cases on the same platform and integrating with traditional finance (TradFi) present critical challenges for the current state of the crypto ecosystem.

Prior to investing in an L2 solution, Sirer recommends users evaluate whether the project genuinely addresses these challenges.

The Layer 2 ecosystem of Ethereum has witnessed significant growth over the past eighteen months, with a total value locked (TVL) surpassing $27 billion.

By October 2023, transaction activity on Layer 2 networks had outpaced that of the Ethereum mainnet, with these networks consistently processing five times as many transactions, according to L2beat.

According to reports, Ethereum-based layer 2 network Arbitrum now commands a market share of 49.17% among layer 2 networks, significantly surpassing the second-ranked Optimism Mainnet, which holds a market share of 28.85%.

The network has also experienced a steady increase in its TVL since at least October of the previous year, growing by approximately 50% from $1.66 billion to the current value of $2.51 billion, as per data from the DeFi tracking site DefiLlama.

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What we write about

I want to save money. Will cryptocurrency work?

Cryptocurrency is essentially virtual money that operates in a decentralized manner, not through a bank but directly on multiple independent computers.

Every cryptocurrency has two main components: the units of digital exchange called “coins” and the network within which the exchange takes place. These units can be transferred between wallets and exchanged on exchanges. The networks in which these coins exist are called blockchains, which translates to “chains of blocks.”

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