The developers behind the Ethereum layer-2 network Arbitrum have revealed a collaboration with the Arbitrum Foundation to introduce a new incubator-style initiative known as Onchain Labs.
An announcement on March 17 indicated that this new incubator is designed to quickly enhance Arbitrum’s current decentralized application (DApp) ecosystem, specifically targeting “innovative and experimental” initiatives.
This support will primarily encompass advice related to product development and market entry strategies, without extending to engineering or operational resources.
The team also mentioned that while their venture capital arm may consider buying tokens from these projects in public markets, there are no guarantees of such actions.
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“Through Onchain Labs, we are allocating resources to aid developers in rapidly enhancing the application layer, collaborating from the initial stages to deliver optimal user experiences on Arbitrum,” stated the team.
“With our backing, we are optimistic about witnessing applications that are industry-leading and uniquely feasible on Arbitrum.”
Nevertheless, the initiative is not solely about increasing the number of applications.
The organization has emphasized a commitment to supporting only fairly launched projects. They criticized the recent trend in the industry towards extractive zero-sum launches, asserting that it clashes with the core principles of cryptocurrency, and that “as an industry, we can — and must — strive for better.”
To counter this trend, they will collaborate exclusively with teams that are dedicated to equitable launches, which they believe is “essential for fostering community alignment. There is no reason why all participants in an ecosystem cannot thrive together.”
The Growth of Layer 2s and Its Challenges for Ethereum
Arbitrum was among the first layer 2s (L2s) on Ethereum, but following last year’s Dencun upgrade, there has been a surge of new layer 2 networks.
Recent data indicates that there are now over 70 layer 2s, with many more planned. This growth has introduced certain challenges for Ethereum, according to industry experts.
One issue is the fragmentation of the Ethereum ecosystem, as various DApps operate on different layer 2s, leading to potential interoperability issues.
“We currently have an excess, and the more layer 2s we create, the less interoperability we will experience, resulting in further infrastructure challenges,” warned the CEO of a perpetual exchange, emphasizing the long-term drawbacks of a fragmented ecosystem.
An additional concern is that cost-effective layer 2s such as Base and Arbitrum are affecting Ethereum’s revenue and overall market capitalization.
In light of this, one financial institution has significantly revised its 2025 price prediction for Ethereum, lowering it by 60%, from $10,000 to $4,000. The head of digital asset research for the firm cited low-cost layer 2s as significant factors contributing to this anticipated decline.
“Layer 2 blockchains were intended to enhance ETH scalability, yet we estimate that Base has diminished ETH’s market cap by approximately $50 billion.”
In the News: Market analysis forecasts ETH may reach a low of $1.6K, SEC delays multiple crypto ETFs, and more insights from March 9 – 15.