Ethereum's "decentralization" acceleration: Why are L2 solutions becoming the core institutional settlement layer, and why is the infrastructure value still undervalued by the market?

In April 2026, Ethereum (ETH) trading price was $2,361.86, up 2.28% in 24 hours, with a total market capitalization of approximately $275.69 billion, accounting for 10.41% market share. Over the past year, ETH price increased by about 41.53%, rising from around $1,691 to the current level. The approval of ETH spot ETFs and continuous institutional entry have provided fundamental support for the price. In the past 24 hours, trading volume was about $267 million, with a high of $2,379.03 and a low of $2,284.54.

However, contrasting sharply with the price is a deeper structural change: Ethereum’s mainnet is undergoing “de-execution.” By early 2026, over 95% of transaction execution within the Ethereum ecosystem has migrated to Layer 2 networks, with the Ethereum mainnet officially retreating to become the “global settlement layer.” Yet, the market’s recognition of this functional restructuring remains lagging—while top global financial institutions like BlackRock, JPMorgan, and Goldman Sachs are gradually shifting trillions of dollars of assets onto L2 networks such as Base and Arbitrum, mainstream narratives still focus on ETH prices and Gas fee revenues, rather than questioning a more fundamental issue: why is the settlement infrastructure value of L2 seriously undervalued?

Institutional Migration Wave: L2 Has Become the New Settlement Layer for Capital Giants

Since the end of 2025, a series of landmark events have pushed L2 into the forefront of institutional finance.

In December 2025, JPMorgan transferred its deposit token JPMD from its internal testing chain to Base (an Ethereum L2 network operated by Coinbase), marking the first time that systemically important institutional deposits were introduced into a public blockchain settlement system. Mastercard, Coinbase, and B2C2 became the first institutional partners to participate in real-time trading.

BlackRock’s flagship tokenized money market fund BUIDL (approximately $2.52 billion) has expanded to include multiple L2 networks such as Arbitrum, Polygon, and Optimism. In February 2026, BUIDL further enabled on-chain trading via UniswapX, with BlackRock strategically investing in and holding UNI tokens—marking the first time a traditional asset manager has allocated DeFi governance tokens on its balance sheet.

Arbitrum announced in February 2026 a partnership with Goldman Sachs to jointly explore institutional-grade blockchain settlement solutions. This collaboration elevated Arbitrum’s institutional strategy to a new level.

Meanwhile, Citibank, Vantage Bank, and Custodia Bank have all deployed bank-supported tokenized USD deposit products on Ethereum and L2 networks. Caitlin Long, founder and CEO of Custodia Bank, stated in an interview that choosing Ethereum was because “it is the most thoroughly tested platform in the smart contract space,” and that the network’s decentralization level is a key risk factor banks must consider.

These events are not isolated. They collectively signal a clear trend: institutional choice of blockchain settlement infrastructure is systematically shifting from the mainnet toward L2.

Infrastructure Upgrade Timeline: From Dencun to BPO2 Evolution

Technical Starting Point: Dencun Opens the Era of Low Costs

The explosive growth of Ethereum’s L2 ecosystem began with the Dencun upgrade in March 2024. This upgrade introduced EIP-4844 (Proto-Danksharding), creating a dedicated data availability layer (Blob space) for Rollups, reducing L2 data publishing costs by about 99%, directly driving daily L2 transaction volumes to multiple times that of L1 activity.

On January 7, 2026, Ethereum implemented the BPO2 upgrade at epoch 419,072, increasing the maximum number of Blobs per block from 10 to 14, and the maximum Blob limit from 15 to 21, boosting data capacity by approximately 40%, further lowering L2 settlement costs.

Key Timeline of Institutional Entry

The following is a chronological summary of major institutional deployments on Ethereum L2:

Network Activity and Price Divergence

A noteworthy fact is that Ethereum’s on-chain activity hit record highs in Q1 2026. Transaction volume on Ethereum’s base layer surpassed 200 million in Q1, up 43% year-over-year, mainly driven by batch transactions from L2 networks like Base and Arbitrum being compressed and submitted for settlement on the mainnet. Meanwhile, ETH price has fallen about 60% from its all-time high of $4,946.05.

This divergence is primarily because L2 only pays minimal settlement costs to L1, capturing a large portion of economic value at the execution layer (L2) rather than the settlement layer (L1). This means the traditional “Gas fee pricing” framework has become invalid, and ETH’s value anchor needs to shift from fee income to the “monetary premium of the global settlement layer”—a restructuring that the market has yet to fully digest.

On-Chain Data Perspective: L2 Revenue Surpasses Mainnet, Dual Oligopoly Established

TVL’s Absolute Dominance

As of March 2026, Ethereum’s mainnet TVL is about $52.4 billion, accounting for 57% of all blockchain TVL. Including L2 networks like Base, Arbitrum, Polygon, and Optimism, this share rises to 65%. In comparison, Solana’s TVL is $6.4 billion, and BNB Chain’s is $5.5 billion.

Within the L2 ecosystem, a highly concentrated “dual oligopoly” pattern has emerged. Base accounts for about 46.6% of L2 DeFi TVL, Arbitrum over 31%, with the two controlling over 75% of total L2 TVL. Base’s TVL peaked at around $5.6 billion in 2025 and was about $4.2 billion in March 2026, up 49.5%. Arbitrum’s 2025 transparency report shows an ecosystem TVL of $20 billion, with a total of 2.1 billion transactions processed and network uptime above 99.8%.

L2 Revenue Outpaces Mainnet

More notably, revenue data shows a structural shift. Data from April 2026 indicates that in the past 30 days, protocols on Base generated about three times the revenue of Ethereum mainnet. During the same period, Ethereum’s transaction fees were approximately $10.3 million, now ranked behind Tron and Solana.

This confirms a structural judgment: the scaled and institutionalized adoption of L2 is entering a self-reinforcing positive feedback loop—lower costs attract more users, more users generate more revenue, more revenue attracts higher-quality applications and liquidity, further drawing in institutional capital.

Capital is migrating structurally from mainnet to L2

Based on on-chain active address data, as of April 2026, Ethereum’s daily active addresses exceeded 788,000, with over 40 million smart contract calls. However, the growth in active addresses mainly occurs at the L2 level—Circle’s April 2026 analysis shows that in February, Base and Polygon continued expanding active addresses, while Arbitrum’s active user base recovered but user stickiness remains weak. The Ethereum mainnet remains focused on settlement.

It’s reasonable to infer that institutional capital migration follows a “test in low-cost L2 environment, then gradually scale” phased approach, and the maturity of L2 infrastructure has reached a critical point capable of supporting this migration.

Industry Voices: Oligopoly Formation and ETH Value Capture Debate

Ethereum L2 as the “Execution Layer” Entry for Institutional Finance

Raoul Pal, CEO of Real Vision, in April 2026, pointed out that Ethereum will become the core infrastructure of banking systems within the next 12 to 18 months, with top institutions expected to migrate clearing, custody, and settlement functions onto Ethereum. The Ethereum L2 ecosystem is seen as a key driver of this shift, with rollup solutions offering high throughput and low costs while inheriting Ethereum’s security.

This view is supported by institutional actions. Over 30 banks, including Bank of America, Citibank, TD Bank, and Wells Fargo, are collaborating with SWIFT to develop cross-border transaction platforms based on Ethereum. Citi’s Global Head of Partnerships and Innovation, Bis Chatterjee, stated that Ethereum’s “standardization features” give the system scalability and flexibility for external integration.

L2 Market Is Moving Toward Oligopoly

A research report by 21Shares at the end of 2025 predicted that most Ethereum L2 networks might not survive beyond 2026, with Base, Arbitrum, and Optimism dominating the market, while smaller rollups with declining usage could become “zombie chains.” This forecast is being validated by data: Base and Arbitrum together account for over 75% of L2 TVL and handle nearly 90% of L2 transactions.

L2 Dilutes ETH’s Value Capture

BlackRock’s 2026 thematic outlook positions Ethereum as a core financial infrastructure but also notes that L2s like Arbitrum and Base, operating under Ethereum’s security, pay minimal fees to the mainnet, potentially diluting ETH’s fee capture ability.

The core debate centers on ETH’s valuation model iteration. When L1 transfers execution revenue to L2, ETH’s value support shifts from “fee consumption” to “settlement certainty”—a global, censorship-resistant finality. L2 offers efficiency but cannot provide L1-level finality and censorship resistance. Institutions managing trillions in assets will not deploy on chains that can be frozen or rolled back by a single sequencer; the core product of L1 is not low fees but certainty.

Deep Impact: Settlement Efficiency, Liquidity, and Market Share Reshaping

The institutional adoption of L2 settlement infrastructure has already produced verifiable effects across three dimensions:

Settlement Efficiency. BlackRock’s tokenized assets integrated with L2 networks shorten institutional settlement times from T+2 days to seconds, while maintaining compliant whitelist access controls.

Liquidity Structure. According to Circle data, by March 2026, 35% of all USDC transfers occurred on L2 networks, more than quadrupling from 8% at the start of 2024. This indicates a structural shift of user activity from mainnet to L2.

Market Share. Ethereum + L2 ecosystems now account for 65% of the blockchain TVL, holding 68% of the RWA (Real-World Asset) tokenization market share.

Based on current trends, the following are reasonable projections:

• L2 will evolve from an “execution layer” into a “bridging layer” connecting traditional finance with on-chain finance. BlackRock’s BUIDL via UniswapX exemplifies this—traditional yield-bearing assets seamlessly interact with DeFi liquidity pools on L2.
• The dual oligopoly of Base and Arbitrum may further solidify. 21Shares’ forecast indicates the market is consolidating around these three networks—once network effects are established, new entrants will face exponentially higher barriers.
• The maturation of the L2 ecosystem will accelerate the iterative evolution of Ethereum’s mainnet value capture mechanisms. Currently, Blob market pricing makes L2 only pay minimal settlement costs; how to maintain low-cost advantages while enabling L1 to capture reasonable settlement value remains a key governance challenge.

If current trends persist, by the end of 2026, the total scale of institutional products (including deposit tokens, tokenized government bonds, and money market funds) operating on L2 could reach trillions of dollars. This is based on the logic that JPMorgan alone has a deposit base of $2.406 trillion; even a small portion migrating to L2 settlement would far surpass the current RWA market of a few hundred billion dollars.

Conclusion

The institutional adoption of Ethereum Layer 2 is no longer just a trend projection but a structural reality unfolding. From BlackRock’s deep integration with Arbitrum, JPMorgan’s real-time settlement on Base, to Goldman Sachs’ exploration with Arbitrum, L2 settlement infrastructure is becoming a key hub connecting global financial capital with blockchain-native liquidity.

However, market valuation logic has yet to fully internalize this change. When L2 revenue surpasses mainnet, when 75% of L2 TVL is concentrated in Base and Arbitrum, and when 35% of stablecoin transfers have migrated to L2, the revaluation of L2 settlement infrastructure has only just begun. For long-term participants in the crypto industry, understanding the deep logic behind institutional choices of L2 over mainnet may be the key to grasping the next wave of value transfer.