The trajectory of Ethereum’s DeFi sector is increasingly influenced by the growth of its Layer 2 (L2) solutions, as both liquidity and innovation are progressively migrating to these secondary platforms. Data from early September 2025 shows networks like Arbitrum and Base have overtaken Ethereum’s mainnet in total value locked (TVL): Arbitrum sits at $19.21 billion, while Base has reached $15 billion. In contrast, DeFi activity on Ethereum’s mainnet has remained muted since its 2021 high, with gas fees totaling just $44 million in August 2025—a 44% drop from the previous month. This shift indicates that L2 networks are capturing a greater portion of DeFi engagement, largely due to their increased speed and reduced transaction fees.
AJ Warner, who serves as Chief Strategy Officer at Offchain Labs, points out that
The expansion of L2s is also spurring new developments in DeFi. Alice Hou from Messari observes that these secondary networks are becoming testing grounds for innovative features, such as
Liquidity providers are adjusting their strategies in response to these changing dynamics. Smaller providers increasingly prefer L2s for better yield opportunities, while larger players stay on Ethereum to benefit from its security and deeper liquidity pools. For instance,
Ease of use is another reason L2 networks are gaining traction. Wallets, bridges, and fiat on-ramps are increasingly guiding newcomers toward L2s, enhancing their accessibility. By September 2025, about one-third of L2 TVL is sourced from Ethereum bridges, another third is natively created, and the rest arrives through external bridges. This distribution shows that while Ethereum continues to be a vital source of liquidity, L2s are simultaneously cultivating their own ecosystems and drawing assets from across different chains.
This broader transformation is redefining Ethereum’s place in the blockchain world. Rather than competing head-to-head with its L2s, Ethereum is evolving into a foundational settlement network, prioritizing security and decentralization. This shift aligns with Vitalik Buterin’s "modular scaling" approach, where L2s handle transaction processing while Ethereum focuses on consensus and finality. As a result, the future of DeFi appears to be a collaborative progression, with Ethereum and its L2s each serving unique and crucial functions.