Ethereum Becomes Settlement Bedrock as L2s Power DeFi's New Frontier

Ethereum’s DeFi future appears increasingly tied to its Layer 2 (L2) expansion strategies, as both liquidity and innovation are showing signs of shifting to these secondary networks. According to recent data, L2s like Arbitrum and Base have surpassed Ethereum’s mainnet in total value locked (TVL), with Arbitrum boasting TVL of $19.21 billion and Base at $15 billion as of early September 2025. Meanwhile, Ethereum’s mainnet TVL for DeFi activity remains subdued compared to its 2021 peak, with August 2025 gas fees collecting just $44 million, a 44% decline from the prior month. These figures highlight a growing trend where L2s are capturing a larger share of DeFi activity, driven by their faster transaction speeds and lower costs.

AJ Warner, Chief Strategy Officer at Offchain Labs, emphasizes that Ethereum is evolving into a "global settlement layer" rather than the sole execution layer for DeFi. He likens this role to traditional finance’s wire transfer systems—trusted and secure for high-value transactions—while L2s handle everyday use cases. This distinction is reinforced by Ethereum's role in hosting major institutional activities, such as Franklin Templeton’s tokenized funds and BlackRock’s BUIDL project. Despite L2s gaining traction, Ethereum continues to underpin the security and trust required for large-scale financial settlements.

The rise of L2s is also fostering innovation in DeFi. Alice Hou from Messari notes that L2s are becoming laboratories for experimental features like Uniswap V4’s hooks, where developers can test and iterate at lower costs. These features, once proven, can then scale across the ecosystem. This flexibility is attracting new users who engage with DeFi in ways that were previously impractical on Ethereum’s mainnet.

Liquidity providers are also adapting to these economic incentives. Smaller providers are increasingly favoring L2s for their yield advantages, while larger ones remain on Ethereum for security and deeper liquidity. Aave, for example, maintains 90% of its TVL on Ethereum, while Uniswap shows a gradual shift to L2s. This segmentation illustrates how different actors in the DeFi ecosystem are optimizing for varying priorities.

User experience is another factor accelerating L2 adoption. Wallets, bridges, and fiat on-ramps are increasingly directing new users to L2s, making these networks more accessible. As of September 2025, approximately one-third of L2 TVL comes from Ethereum bridges, a third is natively minted, and the remainder arrives via external bridges. This dynamic indicates that while Ethereum remains a crucial liquidity source, L2s are also building their own ecosystems and attracting cross-chain assets.

The broader implications of this shift are reshaping Ethereum’s role in the blockchain landscape. Instead of competing directly with L2s, Ethereum is transitioning to a more foundational role as a secure and decentralized settlement layer. This evolution is supported by Vitalik Buterin’s vision of "modular scaling," where L2s handle execution while Ethereum provides the underlying security and finality. As such, the DeFi future may not be a zero-sum game between Ethereum and L2s, but a complementary evolution where each plays a distinct and valuable role.