Doesnt – Earlybirds Invest

More and more companies are attracted to the idea of launching their own Ethereum layer 2 network. Most of them shouldn’t bother. There’s already a staggering number of them — over 150. Quite a few of these are centralized and linked to a single enterprise and several companies such as Robinhood have recently announced plans to launch their own layer 2 networks.

The attractions for launching an Ethereum layer 2 network are significant, especially when compared to launching your own layer 1 (foundation layer) blockchain. Layer 1 networks must compete with networks like Ethereum and Solana in an already intensely competitive and crowded market. Layer 2 networks that run on top of Ethereum also face an intensely competitive marketplace but can simultaneously draw upon the strength of the Ethereum ecosystem, thanks to deep integration into Ethereum itself.

With Ethereum having turned 10 in July, it remains the dominant smart contract blockchain and it is the largest single home for digital assets, real-world assets (RWA), stablecoins and decentralized finance applications. Ethereum’s share of the overall decentralized finance ecosystem has been stable at about 50% for three years now. When layer 2 networks are included in the total, it appears to be rising modestly.

The temptation to launch your own Ethereum layer 2 network is easy to understand — they look like a useful concept with great economics. A layer 2 network on top of Ethereum offers a bit of “best of both worlds” functionality: you can control your own ecosystem within your layer 2 but retain integration with and access to the overall Ethereum ecosystem. Centralized layer 2 networks can set their own price structures and have nearly all the same controls as a stand-alone private blockchain such as deciding who has access to the network and what kind of data will be visible to others.

This comes with a cost. Layer 2 networks must purchase transaction processing space on the Ethereum mainnet to finalize their transactions (known as blob space) — but those costs are likely to be lower than those associated with starting a network from scratch and competing head-on with Ethereum. In fact, according to Token Terminal, the costs of developing a layer 2 are remarkably low. For Base, a layer 2 network run by Coinbase, during June of 2025, the network generated $4.9 million in fee revenue and spent just $50,000 on layer 1 settlement fees.

Indeed, the layer 1 settlement fees on Ethereum are so low they have set off a fiery debate within the network ecosystem about whether they are too low, and that layer 2 networks represent a transfer of benefits from layer 1 stakeholders to layer 2 networks. It is likely this will result in some re-balancing of fees, but even a 10x increase in fees is not likely to alter the fundamentally good value proposition that comes with scaling with layer 2 networks.

Furthermore, the recent announcement by Robinhood that they will be building their own layer 2 network on Ethereum fundamentally validates the overall layer 2 thesis within Ethereum: layer 2 networks are not only a good scaling option, they also enable a variety of business models that will entice a wide range of companies to join the network.The layer 2 ecosystem is likely to have a range of participants from the fully decentralized to the completely centralized.

And this brings us to the key question: does your company need its own layer 2 network? Chances are, you don’t. The real value proposition of a blockchain ecosystem is the ability to work in cooperation with others without any one party controlling the network. If you’re a manufacturing company, for example, you want to work with your suppliers and customers on a level playing field with your competitors. Blockchains let everyone join in without favoring any one participant. In the long run, working together on a level playing field is much cheaper and preferable to trying to integrate into different systems controlled by each one of your key customers or suppliers.

While some layer 2 networks look very profitable right now, this is only true if you can generate good transaction volume. Many of the layer 2 networks operating are doing little to no business as they struggle to differentiate themselves in a crowded market. According to L2Beat, most of these networks have less than $1mm in TVL bridged in from Ethereum and are averaging less than one user operation per second.

So when does a company need its own layer 2 network? My hypothesis is that this works best for firms that can aggregate significant transaction volume into the network and whose customers do not have the means or the individual volume to make their own direct connection to Ethereum. Right now, that largely means financial services firms that have thousands or millions of retail customers, from Coinbase to Kraken to Robinhood. More firms will surely follow. Having a layer 2 network might be seen, in the future, the way we looked at having a seat on the New York Stock Exchange. Brokerage firms would want them, but a car maker wouldn’t find value in it.

Three questions would be useful in determining if a firm should launch its own Ethereum layer 2 network: first, is the company able to aggregate a significant volume of its own transactions or clients compared to other networks? Second, is transacting on-chain central to the company’s core business model (e.g., are you an intermediary, especially a financial one that presently transacts on traditional financial rails). Lastly, does your layer 2 approach offer a differentiated value proposition compared to the many other network options out there? If you can say yes to all three options, this is a possible path forward.

For most other types of firms, they may find the optimal value proposition to be connecting directly to Ethereum, or one of the other open layer 2 networks. It will be less costly and more private than going through an aggregator who will be able to mark up your transaction costs and see your transaction flow and less costly than running your own network.

I suspect, however, that before we are done, quite a few firms that have no need to run their own layer 2 will launch one anyway for the same reasons many firms launched private chains in the past.

No matter how reliably they have failed, the attraction of private blockchains was always hard to counter. The allure of “controlling your destiny” and “taxing the ecosystem” was hard to resist. Public chains, with their openness, interoperability, and permissionless nature can look scary to business users who would prefer more control.

To the same buyers who wanted private chains, centralized layer 2 networks look like a halfway house that may seem appealing. Unlike private chains, I don’t think they are all doomed to fail, but I do suspect only a few will succeed. History keeps repeating itself – mostly because we’re not very good at paying attention to it. Here we go again.

Disclaimer: These are the personal views of the author and do not represent the views of EY.

The Trump administration has offered little consolation to American businesses worried about losing undocumented workers to deportations.

US Agriculture Secretary Brooke Rollins did offer them one solution last week: to replace immigrant farmworkers with Americans who are now required to work in order to access Medicaid benefits, under the recently signed Republican spending bill.

“When you think about it, there are 34 million able-bodied adults in our Medicaid program,” she said Tuesday in a news conference. “So, no amnesty under any circumstances, mass deportations continue, but in a strategic and intentional way, as we move our workforce towards more automation and towards a 100 percent American workforce.”

Unfortunately for the industries targeted in escalating immigration raids — at farms, construction sites, restaurants, hotels, and other businesses — that is not a serious proposal.

Agricultural and hospitality industry leaders are pushing back and raising concerns about how deportations could lead to labor shortages. Though President Donald Trump has appeared publicly sympathetic to those concerns, it’s become clear that business interests aren’t driving his policy.

Rather, it’s immigration hardliners, led by White House deputy chief of staff Stephen Miller and Homeland Security Secretary Kristi Noem, who are. Republicans have handed US Immigration and Customs Enforcement an additional $75 billion, and the agency is more well-resourced than ever as the administration aims for 3,000 immigration arrests per day and 1 million deportations in a single year.

“I have complete faith that Secretary Noem and Stephen Miller and everyone else in the administration is 100 percent committed to this agenda,” said David Bier, director of immigration studies at the Cato Institute, a libertarian think tank.

The conflict between those hardliners and the affected industries reveals a key fiction at the center of Trump’s immigration policy: that masses of immigrant workers are taking away jobs from Americans who are willing and able to fill them. They aren’t. But that hasn’t stopped the administration from ramping up ICE raids that don’t just endanger immigrants and the businesses that rely on them. They’re also imperiling job opportunities and the affordability of goods and services available to all Americans.

Trump’s mixed messages about deportations

Following the ICE raids in Los Angeles that spurred mass protests in early June, some business leaders started becoming more vocal about their fears that worksite immigration raids could upend their companies.

That prompted Trump, at the urging of Rollins, to publicly pledge to work with farming and hospitality businesses to protect their workers and to pause workplace raids for a few days.

“Our great Farmers and people in the Hotel and Leisure business have been stating that our very aggressive policy on immigration is taking very good, long time workers away from them, with those jobs being almost impossible to replace,” Trump wrote on his Truth Social platform in June.

On July 4, he said he would put farmers “in charge” of immigration enforcement when it came to their own businesses, but warned that if they did not do a “good job, we’ll throw [undocumented workers] out of the country.”

In practice, however, it’s not clear that the Trump administration has retreated on immigration raids since then.

ICE carried out a major raid at MacArthur Park in Los Angeles on July 7 and on two California cannabis farms on July 10. At one called Glass House, farmworker Jaime Alanis fell from the top of a greenhouse during the operation and died from his injuries. The New York Times also reported that no business is exempt from worksite immigration enforcement under current ICE policy.

Bier said that he has not put any stock into Trump’s overtures to industry leaders on deportations.

“I said when he first made a statement to this effect that he was not going to change anything about ICE’s operations,” he said.

The fundamental misunderstanding behind Trump’s immigration raids

Immigration hardliners in the Trump administration are operating under the assumption that businesses affected by raids can just hire Americans instead of undocumented immigrants.

In reality, many of those immigrants work jobs that no Americans want — even during times of high unemployment and especially when it comes to low-paid, back-breaking positions in agriculture.

“The idea that there are millions of people waiting around who are willing and able to do this type of farm labor is misguided,” said Tara Watson, director of the Center of Economic Security and Opportunity and a senior fellow at the Brookings Institution.

Bier said some of the best evidence of that is a study of the North Carolina agricultural industry in 2011.

Researchers found that, of the nearly half a million unemployed North Carolinians at the time, only 268 native-born Americans applied for 6,500 farm job openings despite the fact that employers were required to publicly advertise the positions. Over 90 percent of those applicants were hired, but most did not show up for their first day of work or quit within a month. Only seven completed the entire growing season.

Medicaid recipients in particular are even less likely to fill agricultural job openings than Americans overall, despite Rollins’s suggestion to the contrary.

For one, there aren’t actually many Medicaid recipients who don’t already have a job and are able to work at all, let alone able to work a physically demanding job in agriculture. A Brookings study found that out of the roughly 71.3 million recipients of Medicaid, only 300,000 people did not qualify for exemptions to the new work requirements and were not working because they didn’t want to.

“There’s a reason why they’re on Medicaid, and that’s because they’re kids, they’re elderly, or they’re disabled, or they already have a job that just doesn’t provide them with the kind of health insurance that they need,” said Ben Zipperer, a senior economist at the Economic Policy Institute.

Medicaid recipients are also predominantly located in urban areas and aren’t likely to relocate for a low-paid job in agriculture. They are very unlikely to swoop in and save farms hard-hit by immigration raids. The fact that the administration is pushing that fantasy shows that its theory of how its immigration policies will affect businesses and the broader economy is misguided.

The economic cost of immigration raids

Mass deportations of farm workers alone could deal the US a significant blow. It would likely slash domestic agricultural production, driving up food prices for most Americans.

Watson said that farms would find it almost impossible to hire people to do labor that cannot be automated, forcing some to move their production abroad. The US might have to start importing certain crops at a higher price depending on the outcome of Trump’s tariff negotiations. He has already slapped a 17 percent tariff on Mexican tomatoes.

“If the labor supply for farms is greatly restricted, then farms will produce less, and that will be passed on to consumers as higher prices,” Bier, of the Cato Institute, said.

Beyond agriculture, Trump’s immigration raids could actually cause the overall job supply to shrink, rather than creating openings that Americans would readily fill.

A study by the Economic Policy Institute found that, if Trump meets his goal of deporting 1 million immigrants every year of his second term, it would eliminate the jobs of 3.3 million immigrants and 2.6 million US-born workers by the time he leaves office. The job supply in construction would be particularly hard-hit, falling almost 19 percent overall.

That’s because immigrants typically have jobs that complement those worked by Americans, filling job openings that the latter will not, and because immigrants also create jobs as business owners and consumers of American goods and services.

For that reason, deporting immigrant workers who have no criminal record as part of Trump’s “America First” agenda is “just building on a myth that immigrants in the US are ‘taking American jobs,’” Watson said.

“There’s been a huge amount of economics literature suggesting that that’s not the case, and that, in fact, immigrants end up generating more jobs for US-born people,” she said.

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