The creators of the Ethereum layer-2 network Arbitrum have unveiled a collaboration with the Arbitrum Foundation to initiate a new incubator-style initiative named Onchain Labs.
As shared in a March 17 announcement, the primary goal of this new incubator is to swiftly enhance Arbitrum’s current decentralized application (DApp) ecosystem, particularly targeting the support of “innovative and experimental” projects.
The support provided will mainly consist of product and go-to-market guidance, without extending to engineering or other operational resources.
Furthermore, while it is possible that their venture capital division may buy tokens from these projects in the public market, there are no assurances in this regard.
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The team noted that Arbitrum has evolved into one of the “most performant ecosystems” in the industry over recent years. With the launch of Onchain Labs, the focus will now pivot toward enriching the application landscape within the network.
“Through Onchain Labs, we aim to allocate resources to aid developers in swiftly advancing the application layer by collaborating from inception to deliver optimal user experiences on Arbitrum,” the company expressed.
“With our backing, we’re optimistic that we’ll witness applications that set the industry standard and are uniquely possible on Arbitrum.”
However, this initiative is about more than just developing additional applications.
The organization emphasized that it will only support projects that launch in a fair manner. They argued that the recent trend in the industry towards extractive launches “contradicts the fundamental principles of crypto,” asserting that “we can — and must — strive for better.”
To combat this trend, they will collaborate solely with teams committed to fair launches, which they believe are “essential for ensuring community alignment. There’s no reason participants in an ecosystem can’t thrive together.”
The surge of layer 2s is presenting challenges for Ethereum
Arbitrum was among the first layer 2 solutions on Ethereum, but the number of new L2 networks has surged following the Dencun upgrade last year.
Reports indicate that over 70 layer 2s currently exist, with many more on the horizon. This proliferation has sparked concerns among some industry experts.
The first issue is the fragmentation of the Ethereum ecosystem, where various DApps operate on different layer 2s, which may not be interoperable.
“At present, the situation is excessive. The more L2s we create, the less interoperability we will achieve, leading to further infrastructure challenges,” stated a co-founder and CEO of a perpetual exchange.
“Even with the best intentions behind creating the next rapid, low-fee, user-friendly blockchain, in the long term, it may be detrimental as it fosters a more divided ecosystem,” he added.
Another problem is that cost-effective layer 2 solutions like Base and Arbitrum are negatively affecting Ethereum’s revenue and market capitalization.
This news coincides with a significant downgrade in the price target for Ethereum from a financial institution, which slashed projections for 2025 by 60%, going from $10,000 down to $4,000. The head of digital asset research at the institution noted, “We anticipate ETH to maintain its current downward trajectory.”
The decline has been attributed to lower-cost layer 2s like Base and Arbitrum, which have reportedly removed substantial value from Ethereum’s market cap.
“Layer 2 blockchains were designed to enhance ETH’s scalability; however, we estimate that Base has diminished ETH’s market cap by $50 billion.”
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